Thirty-four Percent of All Small Firms are Raising Prices, Confirming Inflation Concerns
The National Federation of Independent Business´ Chief Economist William Dunkelberg issued the following statement today in response to the release of the Bureau of Labor Statistics Employment Situation report. The employment figures cited by Dunkelberg are from the August 2006 NFIB Small Business Economic Trends Report, which was released September 12 and is available at www.nfib.com/research:
– On the inflation front, the only good news was that it didn´t get any worse in August according to the National Federation of Independent Business survey of a sample (480 respondents) of its member firms. Seasonally adjusted, the net percent of owners raising average selling prices fell a point to 22 percent, and the net percent of owners planning to raise prices in the coming months fell a point to 29 percent.
– This isn´t enough to push fundamental inflation substantially lower (with one caveat – imputations for housing costs and sharp declines in energy prices could affect the computation of the CPI). Most of the pressure on prices is coming from construction and manufacturing, industries where a downshift in demand will quickly rein in prices. There isn´t much pressure coming from the services sector, and in finance, insurance and real estate, more firms are cutting prices than raising them.
– Unadjusted, 34 percent reported raising average selling prices, up two points and thirteen percent reported lower selling prices, up three points. The bad actors were in the wholesale trades, manufacturing and construction. Among finance, insurance and real estate firms, those reporting lower prices exceeded those raising prices by 18 points – lots of price cutting going on there; it´s been down hill all year. Overall, firms in the service sector are behaving well. There is little evidence of price pressure coming from these sectors (professional services, non-professional services and finance, insurance and real estate services).
– Overall, it´s hard to see inflation moderating when, net of price cutters, over 20 percent of the firms are raising average selling prices. There was little inflation in 2003 and the percent of firms cutting prices generally matched the percent raising prices. We´re a long way from there right now. Pricing power exists only when sales are strong. It does appear that the economy is slowing. This may take the edge off of inflation, but it will take a serious slowdown to curb fundamental prices trends. Of course, we could get some computational assistance in the near term from falling energy prices and other imputations. In the meantime, if the Fed is watching demand and not trailing price measures to shape policy, we should be okay.