Dec. 15, 2005-- Inflation worries are putting a slight damper on the holiday spirit at small businesses this year, while consumers are spending less and prices are rising. Here's a look at this week's economic developments and how they may impact your business.
Business Owners Raising Prices
On Tuesday, the National Federation of Independent Business reported an unseasonable downturn in optimism among small-business owners.
In its monthly survey, the nation's largest small business lobby found that 26% of small firms polled in November were forced to raise average selling prices -- a four-point jump from the previous month and the second-highest reading in nearly two decades. What's more, a third of all respondents -- about a quarter of the group's 600,000 total members -- said they were planning to raise prices in the months ahead.
But as prices went up, profits melted. The number of owners reporting higher earnings dropped seven points to 20%. More than one third said earnings were lower than October, with 29% citing weaker sales and 21% blaming rising costs.
As a result, the survey's optimism index fell to 101.2, down from October's near-record high of 103.7.
The number of owners expecting higher sales also dropped, from 54% to just 23%, as did positive earnings and job-creation plans.
William Dunkelberg, the NFIB's head economist, said the downward trends might be showing the economy is rearing up from an unsustainable pace over the third quarter -- a chief concern of the Federal Reserve.
The modest job-creation losses followed three months of unprecedented growth that cushioned the impact of Hurricane Katrina on the labor market, the survey said. Overall, small companies added a net 0.15 employees per firm in November, though 12% said qualified workers were getting harder to find.
More companies also saw inventory gains rather than declines in November, as "plans to add to inventories" hit a year-end high of 8%. Those reporting capital outlays rose three points to 64%, with median outlays reaching $32,000 -- mostly for new equipment, vehicles or expanded facilities.
Retail Spending Declines
Yet, where business owners were in a spending mood, consumer pocketbooks were somewhat tighter. While overall retail sales increased in November by 0.3%, sales excluding of cars and parts dropped by 0.3%, the Commerce Department reported Tuesday.
Sales at gas stations alone were down by 5.9% in November, as gas prices eased back after surging to more than $3 per gallon in October. Sales were also down furniture stores, as well as sports, hobby and bookstores, the report showed.
Still, retail sales overall were up 6.3% -- 8.7% excluding cars and parts -- over November 2004.
Cheaper Energy, Higher Consumer Prices
After a 12% gain in September, energy prices fell by 8% in November, the Labor Department reported Thursday. That dragged consumer prices down 0.6%, the largest decline since 1949.
Yet the declines were deceiving. Excluding food and energy prices, so-called core prices were up 0.2%, the report showed -- about the rate economists expected. Core prices have been rising at annual rate of 2.4% in the past three months.
Trade Gap Widens
On Wednesday, the Commerce Department reported that the trade gap -- the difference between U.S. exports and imports -- grew by 4.4%, to $68.9 billion in October, surpassing September's record-high $66 billion.
The widening gap was blamed on the hurricane season, which disrupted domestic oil production in the Gulf, along with distribution channels, forcing manufacturers to seek foreign supplies. The U.S. imported 304.5 million barrels of crude oil in October, compared to 278.5 million the previous month, the report showed.
The growth in U.S. imports, at 2.7%, was more than double the rate of exports.
Meanwhile, both import and export prices dropped in November, the Labor Department said in a separate report Wednesday. Prices paid for imports fell 1.7%, dragged down by cheaper petroleum prices, the report showed. At the same time, prices received by U.S. exporters fell 0.9%, the sharpest slide since December 1991.