After enduring months of steadily rising energy costs, a growing number of small businesses are raising prices, and the trend is likely to continue well into the New Year. As a result, inflation fears are outracing their concerns over the nation’s credit problems.
The findings were contained in the latest economic survey by the National Federation of Independent Business (NFIB). The report takes a clear shot at the Federal Reserve. At issue, the central bank’s decision to lower interest rates twice since September to maintain liquidity in credit markets in the face of the subprime mortgage crisis.
“While the Fed ‘fiddles’ over big bank problems, inflation continues to ‘burn.’ In September, a net nine percent [of small businesses] reported higher selling prices. In December, a net sixteen percent reported raising average selling prices. This is not consistent with ‘two percent’ inflation,” the report states.
Overall, the group’s Small Business Economic Trends (SBET) report suggests that Main Street held its own last month in the face of the nation’s subprime mortgage woes. As for 2008, the report, while less optimistic, also raised no red flags.
No recession is reflected in the current data, “just slow growth with, unfortunately, higher than desired inflation,” it stated. The report also found no significant sign of a “credit crunch” on Main Street. “It’s still about a handful of big banks,” it stated.
Far from helping the economy, the report suggests that the Fed may have weakened confidence among business owners. “It may be a coincidence, but it is clear that after the Sept. 18 surprise cut and the announcement of the Federal Reserve’s economic outlook, owner sentiment and spending and hiring plans declined substantially after making a nice surge in the first weeks of September. An additional rate cut at Halloween and more warnings about the economy further weakened owner expectations,” the report said.
The NFIB Index of Small-Business Optimism gained 0.2 points in December, but has fallen 2.4 points since September, the lowest since March 2003. Of those polled, 26 percent planned to raise prices in December, up from 21 percent in September. Capital spending rose slightly in December, although the number of owners who forecast softening sales also increase slightly.