Businesses Tightening Their Belts

That improved financial situation could explain why, so far at least, the corporate sector is merely holding back on investments and spending, not engaging in the kind of wrenching pullbacks of 2001 and 2002.

"As a whole, the nonfinancial business sector remains in good financial condition, with strong profits, liquid balance sheets and corporate leverage near historical lows," Federal Reserve Chairman Ben S. Bernanke told Congress last week. He also said, though, that lower demand and tighter credit conditions "suggest that investment in equipment and software will be subdued during the first half of 2008."

There have been fewer layoffs in this downturn. An average of 360,500 people have filed new claims for unemployment benefits in the past four weeks, the highest since Hurricane Katrina -- but below such claims in the last recession, when that number frequently exceeded 450,000.

While not slashing jobs in epic numbers, employers are making fewer new hires. Employers made 6.5 percent fewer new hires in December than a year earlier, according to Labor Department data.

"I know we're in for a ride," said Jason Bishara, chairman of SLM Holdings, the software company. "I need a flexible business," he said, which is why he is adding only independent contractors, not permanent staffers, to his team of 25 people, most of whom work remotely.

Companies are reducing inventories to save money. In the National Federation of Independent Businesses survey, 21 percent of companies said they reduced inventories while 11 percent increased them.

"I'm very careful now," said Carol Kalbfleisch, owner of A Floral Affair, a wedding planner and large florist that has been reducing its staff and supply of merchandise.

Fewer businesses are looking to make investments in the future, delaying capital expenditures. Twenty-nine percent of senior bank loan officers surveyed by the Federal Reserve saw lower demand for commercial and industrial loans in the fourth quarter, compared with 13 percent who experienced stronger demand.

"What you have to do is be prepared to live through the bottom of a cycle and come out on the other side," said Leslie Goldberg, chief executive of Bowl America, an Alexandria company that owns 19 bowling centers. The firm has paid off mortgages on most of its properties and built up its cash.

"If you live on the edge, you're going to get wiped out," Goldberg said.

Many business people describe an atmosphere of caution.

"I've got larger customers who both because of the stock market and their perception of the economy put some significant projects on hold with us that we had forecasted would come in the first quarter," said Charles Atwell, owner of Innovative Business Interiors.