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This Week's Economic Roundup

Business owners remain optimistic despite weaker sales; productivity on the rise.
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Small-business owners are putting on a brave face amid tougher market conditions this summer, with sales, jobs, and capital spending on the decline. Here's a look at this week's economic developments and how they may impact your business.

Owner Optimism Rising

Despite a downturn in sales, new jobs, and capital spending in July, small-business owners remain optimistic for the days ahead, the National Federation of Independent Business reported on Tuesday.

Based on a survey of its 600,000 members, the Washington-based advocacy group edged up its small-business optimism index by 1.4 points over June to 98.1, just below its benchmark level of 100. Typically, about a quarter of the group's members respond to the monthly surveys.

More owners in July expected business conditions to improve, rising by two points to a net-negative 6%, as well as higher sales volumes, up by five points to 18%. The number of business owners who feel now is a good time to expand rose three points to 16%, according to the survey.

Still, weaker sales cut into second-quarter earnings, the survey found, with 35% of owners citing lower earnings compared to the previous three months, blaming tepid sales, higher costs, and lower selling prices, among other conditions.

Only 15% of the businesses increased employment in July, while 10% cut jobs, the survey said. About half reported hiring or trying to hire new workers, a gain of two points over June.

"Small-business owners are sending a soothing message, saying they don't expect a downturn in the immediate future," NFIB chief economist William Dunkelberg said in a statement.

Fed Halts Rate Hikes

On Tuesday, the Federal Reserve voted to keep interest rates steady at 5.25%, saying the current slowdown in the economy would keep inflation contained.

The move brought to an end 17 consecutive rate hikes that began in mid 2004.

Productivity Up

The U.S. non-farm business sector saw a boost in productivity over the second quarter, the Labor Department reported on Tuesday.

Yet, while productivity rose at a 1.1% annual rate, unit labor costs -- a measure of inflation -- were also up by 4.2%, compared to 2.5% in the previous quarter, the report said.

Sales at merchant wholesalers rose 1.4% in June to $3331.1 billion, the Commerce Department reported on Wednesday.

Sales of durable goods were up 0.2%, including gains in metals and minerals, while nondurable goods rose 2.6%, the report said.

Inventories were also up, by 0.8%, to $378.9 billion, with an inventory to sales ratio of 1.14, the report said.

Jobless Claims Rise

New claims for unemployment insurance rose by 7,000 to 319,000 in the week ending Aug. 5, the Labor Department reported Thursday.

The four-week moving average for new claims was 308,750, down 3,750 from the previous week, the report said.

The largest increase in new claims last week came from California, Missouri, and Wisconsin, while claims were down in Michigan, Tennessee, and North Carolina, the report said.

Last updated: Aug 10, 2006




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