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The Economy This Week

Wall Street crisis sours small-business mood; higher prices offset wage gains.
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As fallout from the financial market crisis spreads, small-business owners are bracing for tougher times ahead, while consumers are spending less. Here's a look at this week's economic developments and how they may affect your business.

Business Mood Sours

The financial market crisis this month dampened an already sour mood among the nation's small-business owners, with more businesses facing weaker earnings and tighter credit, Discover reported Monday.

Its survey of 1,000 owners nationwide found more than half said market conditions for their businesses were getting worse, the credit card firm said. Another 73 percent said the economy was getting worse, up from 60 percent surveyed in August. Only seven percent said they felt the economy was improving, an all-time low for the monthly surveys.

"This month's drop isn't surprising given the constant stream of uninspiring news about the housing and lending markets," Ryan Scully, director of Discover's business credit card, said in a statement.

Consumer Outlook Bleak

The unfolding crisis on Wall Street this month is expected to deflate modest gains in consumer confidence, which remains at record lows, the Conference Board reported Wednesday.

In a survey of 5,000 U.S. households, 34.2 percent described economic conditions last month as bad, up from 32.7 percent in August, the New York-based private research group said. Still, gains in short-term outlook lifted the group's monthly consumer confidence index for September to 59.8, from 58.5.

Lynn Franco, the group's director of research, cited an improved short-term outlook for the modest gains in September.

"These results did not capture all of the tumultuous events in the financial sector this month," Lynn Franco, the group's director of research, said in a statement. “Until the dust settles a bit more, we will not know the full impact on consumer's expectations."

In August, rising consumer prices cut into higher wages, leaving overall spending unchanged from July, the Commerce Department reported Monday.

While personal income rose by 0.5 percent, core inflation excluding food and energy prices rose by 0.2 percent, the sharpest increase in over a decade, the report said.

Payrolls Up

Small firms continued to outpace larger employers in hiring last month, ADP reported Wednesday.

While midsize and large companies shed a combined 36,000 jobs, small businesses added 28,000, the Roseland, N.J.-based payroll firm said. That left a decline in overall private-sector employment of 8,000 jobs for the month.

"This month's growth was up from Augusts’ revised increase of 17,000, and offers a continued sign of resiliency among small-size businesses when compared to the job losses experienced at larger firms," Joel Prakken, chairman of Macroeconomic Advisors, which compiles the report for ADP, said in a statement.

The survey is based on payroll data from 399,000 U.S. businesses.

Last updated: Oct 2, 2008




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