Small business owners see U.S. economy improving

U.S. small business owners see an improving economy and point to the Small Business Index released Wednesday as proof. 

The Q3 MetLife and U.S. Chamber of Commerce Small Business Index reached its highest score since the start of the pandemic. Used to measure the confidence of small business owners, the Index score rose from 63.1 to 69.2, due to the number of small businesses believing the economy is in good shape. 

According to the Index, 66% of small businesses report that their business is in good health and 72% state that they are comfortable with their cash flow. Both measures increased several points from last month. 

“I think what we’re looking at now is trying to provide resources to help those businesses maintain that momentum and potentially scale and have our eyes on those big things such as rising interest rates and inflation,” said Ryan Unger, president and CEO of the Harrisburg Regional Chamber and CREDC. “I think those are the issues that could impact small business growth, so we want to make sure we can maintain that momentum going forward.” 

Unger added that inflation, if unchecked, would drive up interest rates, inhibiting the ability of small businesses to scale and grow. 

“I think we’ve got our eyes on those (factors) in the months ahead,” Unger said. 

Tom Sullivan, vice president of Small Business Policy at the U.S. Chamber of Commerce, cited the resiliency of main street employers. 

“With fears of a recession likely in the rear-view mirror and inflation starting to ease, small business owners are feeling a lot better than they were a year ago,” Sullivan said in a statement. 

Inflation and employee retention remain among the leading concerns for small business owners, according to a survey this quarter. Small business owners added that keeping pace with employees’ salary expectations is also a challenge. 

At the same time, small business owners point to what they feel are the unique benefits and advantages they can offer to employees. Nearly nine in 10 employers said in this quarter’s survey that their company feels like a family and that this environment has aided them in retaining employees. Roughly 82% of employers surveyed said small businesses are uniquely qualified to provide employees with connections to and support from upper management.

Higher education tuition frozen for fifth straight year

For a fifth consecutive year, the Board of Governors for Pennsylvania’s State System of Higher Education (PASSHE) has voted unanimously to freeze tuition. 

Tuition for in-state undergraduate students, close to 90% of whom are Pennsylvania residents, will be flat for a sixth consecutive year. Had tuition kept pace with inflation, it would today be 21% higher. 

Board chair Cynthia Shapira said freezing tuition has been a top priority for the State System universities and helps low-and middle-income families. 

“Our students depend on PASSHE universities for a high-quality education at the lowest cost,” Shapira said in a statement. 

An increase of $33 million to PASSHE universities would be provided by Pennsylvania’s budget. 

“PASSHE is proud of our partnership with the state, which helps Pennsylvania’s students get the education and skills for the most in-demand jobs at the lowest cost,” Chancellor Dan Greenstein said. “Higher education is changing, and State System universities are continuing to evolve to meet the new needs of students, employers, and Pennsylvania’s economy. 

“Together with the state, we are strengthening the pipeline of talented and skilled people from the classroom to the workforce and providing value to students as they gain the knowledge to build successful careers close to home.” 

Along with maintaining in-state undergraduate tuition at $7,716, PASSHE students will receive $125 million in university-funded financial aid to help them afford their education. Increased state funding and PASSHE universities saving $300 million through a commitment to cost efficiencies helped make tuition freeze and aid possible.

Yearly inflation rate falls to lowest level since April 2021

Inflation in the U.S. slowed to 4% in May when measured year over year – the lowest 12-month figure since April 2021 and a further sign inflationary pressures are easing.

Consumer prices in the United States rose just 0.1% from April to May, according to data released Tuesday by the Bureau of Labor Statistics, a number driven by tumbling gas prices, a much smaller rise in grocery prices than in previous months and less expensive furniture, airfares and appliances, The Associated Press reported.

Adjusted for seasonal patterns, gas prices fell 5.6% from April to May and are down nearly 20% from a year ago. Grocery prices ticked up 0.1%, though they’re still 5.8% higher than they were a year ago.

Still, core prices remained high last month, climbing 0.4% from April to May, the sixth straight month of increases at that level or higher. Compared with a year ago, core inflation dropped to 5.3% from 5.5%, still far above the Federal Reserve’s target of 2%.

Last month’s core inflation was fueled mostly by high apartment rental costs and a second straight jump in used car prices, which leaped 4.4% from April to May. An economist told AP that those two factors alone accounted for four-fifths of the core price monthly increase in core prices.

However, most analysts expect those costs to slowly ease in the months ahead, AP said. Wholesale prices of used cars declined last month, for example, which may foretell lower retail used-car prices in coming months.

Paula Wolf is a freelance writer

Strength in labor market reflected by rise in Citizens Business Index

Despite the risk of recession, Citizens Business Condition Index (CBCI) increased to 53.9 in the first quarter, Citizens announced on Tuesday. 

Citizens Bank has multiple locations throughout central Pennsylvania and the Lehigh Valley.

The index rise reflects continued strength in the labor market, additional business openings, and positive corporate revenue trends. The first quarter bounce-back indicates a return to positive business conditions following a drop below 50 in the fourth quarter last year.

“The U.S. economy bounced back during the first quarter and, despite the disruption in the financial sector, there are several positive signs going forward such as improving inflation measures and still-strong labor numbers,” Eric Merlis, Citizens’ managing director and co-head of global markets said in a statement. 

“Policymakers are still trying to thread the needle amid heightened recession concern, but companies that have made it through the pandemic and recent headwinds continue to prove their resiliency.” 

Despite aggressive Federal Reserve rate hikes aimed at slowing the economy to curb inflation, the labor market has remained resilient. Citizens’ proprietary data on client revenue grew across industries during the first quarter with consumer services and health care among the top sectors due to their ability to pass on rising costs to customers. 

The manufacturing sector slowed as higher borrowing costs impacted expansion by limiting capital expenditure. 

The index showed improving dynamics in the business environment. Three of the five components listed below boosted the index level while one was neutral, and one weighed on the reading: 

  • The proprietary activity data of Citizens’ commercial banking clients, a key component of the index, was very strong across regions, suggesting that the conditions at middle-market and mid-corporate businesses remained positive. 
  • The ISM non-manufacturing component grew as consumers spent more on services and companies in these sectors were more able to pass on any increased costs. 
  • New business applications increased, helping to boost the index. 
  • Employment trends, which are measured by initial jobless claims as an index component, were flat for the quarter, but nationally the number of jobs gained overall was surprisingly high despite much-publicized corporate layoff announcements. 
  • The ISM manufacturing index decreased as the sector is more sensitive to rising interest rates. 

 The trends capture a quarter where demand for goods was lower while demand for services was steady amid broader employment stability. CBCI’s first quarter rise revealed a business environment that is adapting to the year-long rate hike campaign from the Fed. The labor market’s strength continues to have a stabilizing effect on business.

Merlis said the first-quarter index indicated a business environment where activity has adjusted as interest-rate hikes seem to be working to curb inflation.

“The still-strong job market continued to be a source of support during the quarter,” said Merlis.

Senior, vulnerable homeowners and renters are focal point of new legislation

Legislation has been introduced by Pennsylvania State Representatives this week that will equalize income levels, increase rebate amounts, and raise the highest income bracket for senior and vulnerable homeowners and renters. 

Seeking to expand Pennsylvania’s Property Tax/Rent Rebate (PTRR) Program, State Reps. Izzy Smith-Wade-El (D-Lancaster) and Carol Hill-Evans (D-York) introduced the legislation on Monday. 

“It has become too hard to afford a home in the Commonwealth of Pennsylvania,” Smith-Wade-El said in a statement. “For many of our senior homeowners and renters, the place in which they live is a legacy of work, life, and love, and we have an obligation to protect them and that legacy by helping them stay in their homes.” 

Smith-Wade-El added that older Pennsylvanians are struggling to pay for necessities such as food and rent. 

“Despite rising inflation and cost-of-living increases,” Smith-Wade-El said, “PTRR’s income limits, rebate amounts, and other provisions have not been modified to correspond to these economic changes, resulting in fewer people qualifying for the program and the program rebates failing to provide the necessary financial assistance.” 

Smith-Wade-El stated that the PTRR has long discriminated against renters, stating that they deserve less support than homeowners. Expanding the PTRR will provide the needed support to allow seniors and individuals with disabilities to remain living in their homes. 

“If we act now to expand PTRR,” Smith-Wade-El said, “we can preserve this crucial support for thousands of seniors who would otherwise lose eligibility next year because their Social Security cost-of-living adjustments will push them above the eligibility threshold.” 

The highest available current rebate is $650 for homeowners and renters with up to $8,000 in household income, with lower rebates available for those with higher incomes; while homeowners with income up to $35,000 qualify for a property tax rebate, renters can only receive a rent rebate if their income does not exceed $15,000. 

The reforms sought by Smith-Wade-El and Hill-Evans in their legislation would have the same income brackets and increase the rebate amounts for homeowners and renters: those with income below $15,000 would be eligible for a $1,300 rebate; those with an income of $15,001-$25,000 would be eligible for a $975 rebate, and those with an income of $25,001-$45,000 would be eligible for a $650 rebate. 

“Significantly, the legislation would extend the highest income bracket from $35,000 to $45,000 to match today’s cost of living and so provide thousands more Pennsylvanians the support they deserve from the PTRR,” Smith-Wade-El said. 

Hill-Evans urged legislators to act quickly to expand the housing protections to protect Pennsylvania residents who are in danger of losing their homes. 

“None of our vulnerable neighbors deserve to lose the roof over their head,” Hill-Evans said in a statement. “It’s the right thing to do, especially when you consider the current economic climate and how long it’s been since we’ve adjusted the program’s income parameters.” 

Smith-Wade-El wondered how many Pennsylvania grandmothers and grandfathers are being pushed out of their homes by rising living costs. The legislation introduced by him and Hill-Evans, Smith-Wade-El said, will “help expand the safety net so that senior and disabled members of our community can keep their roofs over their heads.” 

A sense of urgency to reform the PTRR program is shared by Gov. Josh Shapiro, Smith-Wade El said. In his inaugural budget address Shapiro proposed expanding the PTRR Program by raising income eligibility caps to $45,000 for both homeowners and renters, indexing eligibility caps to inflation, and increasing maximum rebates to $1,000.  

The first major update since 2006, these changes would expand program eligibility to 173,000 individuals and increase assistance to an additional 398,000 people. 

Smith-Wade-El and Hill-Evans said they look forward to partnering with Shapiro to expand PTRR so that vulnerable seniors and persons with disabilities in Pennsylvania can stay in their homes. 

Retailers juggling inflation, inventory and staffing woes this holiday season

The 2022 holiday shopping season certainly has its challenges. With skyrocketing inflation, inventory issues and workforce shortages there have been many issues that retailers have had to overcome. 

That doesn’t mean it’s been a bad season so far. 

According to the National Retail Federation, a record 196.7 million Americans shopped in stores and online during the five-day holiday shopping period from Thanksgiving Day through Cyber Monday. 

Denise Ogden, marketing professor at Penn State Lehigh Valley, said inflation is definitely impacting holiday shopping habits, but that doesn’t mean people are necessarily shopping less. 

“It’s just that that amount of money isn’t buying the same amount of gifts,” she said. 

Higher prices mean consumers are being much more price sensitive. 

“Shoppers are really looking for the bargains,” she said. 

And thanks to supply chain issues last year, savvy consumers will be able to find some bargains among the higher prices. 

She said many retailers are dealing with overstock of items that were supposed to ship last year but were held up in port or delayed by other supply chain issues. 

“The problem is, it’s the wrong stuff,” she said. 

Especially with items like clothing and other fashion-dependent goods, last year’s inventory isn’t as attractive to shoppers and many retailers are overstocked with it, so those willing to buy last year’s holiday sweaters might find some good deals. 

Because prices are higher, Ogden said retailers are trying new – or rather old – ways to help customers afford gifts. 

“Layaway is back,” she said. “Even Amazon has a form of layaway, and many retailers are offering buy now pay later payment plans – especially on larger ticket items.” 

She said progressive leasing is also becoming popular, but that can come with risks. 

“If you skip a payment everything can be due immediately or maybe face increased interest,” she said. 

Mostly, she said it’s just about retailers making it easier for consumers to make purchases. 

That’s brought back another old trend. She said the old Kmart concept of “Blue Light” specials are being brought back. 

She said flash sales, both in store and online, are proving to be a good way to build excitement and get shoppers to make that impulse buy. 

Retailers are also pushing new ways to help make shopping easier. Curbside pickup, where customers can buy online and then pick up an item at the closest store is becoming increasingly popular. 

And after shunning bricks and mortar stores during the height of the pandemic, Ogden said consumers are beginning to return to stores, with in-person shopping up about 3% over last year. 

One thing that wasn’t as big this shopping season was Black Friday. 

“Black Friday isn’t what it used to be,” said Ogden. “It used to be a single day, now it’s more of a whole season with some sales starting as early as October.” 

She noted that even Amazon added a second Prime Day. 

But as retailers look to improve the shopping experience, the biggest hurdle remains staffing issues. 

Getting workers has been an ongoing challenge, and shoppers may face longer lines or lapses in customer service because of a lack of staff. 

That can be a problem for retailers. 

Research conducted by the consulting firm, Steritech, showed that 4 in 10 consumers, or 39%, would not return to a store after an unsatisfactory visit. 

The study, which was a survey of 3,000 North Americans about food and retail brands, said that poor customer service could be costing North American businesses over $200 billion every year. 

But Ogden said that could be good news for smaller retailers.  

Smaller businesses, many of which are owner-operated, can offer better customer service and lure the customers that may have been turned off by the poor service they received elsewhere. It’s all about making the best of this year’s challenges. 

Inflation eases in July, driven by falling energy prices

The U.S. Commerce Department reported Friday that inflation eased in July, raising hopes that it may have peaked – finally.

Helped by lower energy costs, the personal consumer expenditures index rose 6.3% in July from a year ago, down from a 6.8% jump recorded in June, which was the biggest increase since 1982.

Core inflation, which excludes volatile food and energy prices, climbed 4.6% last month from the year before, following a 4.8% rise in June.

On a monthly basis, consumer prices fell 0.1% from June to July and core inflation inched up 0.1%.

The news also comes on the heels of a reduction in the Labor Department’s consumer price index in July. Inflation began to accelerate in the spring of 2021 as the economy rebounded quickly from the coronavirus recession.

The Associated Press noted that the personal consumption expenditures index is less well known than the Labor Department’s consumer price index, but is preferred by the Federal Reserve as a gauge of inflationary pressures.

One of the reasons is the PCE attempts to measure how consumers are adjusting to inflation by purchasing cheaper store brands to save money.

The Commerce Department report also showed that Americans’ after-tax personal income rose 0.3% from June to July after adjusting for inflation.

Paula Wolf is a freelance writer

Inflation rises less than expected in July

Helped by falling gasoline prices, inflation eased a bit in July, giving American consumers some relief from surging costs. However, overall price increases slowed only modestly from the four-decade high of 9.1% recorded in June, according to the Bureau of Labor Statistics’ latest Consumer Price Index.

Consumer prices climbed 8.5% in July compared with a year earlier, and on a monthly basis, prices were unchanged from June to July, which hasn’t happened in more than two years.

The gasoline index fell 7.7% in July, the largest month-over-month drop since April 2020, while energy prices fell 4.6%.

Also declining in price from June to July were airfares, which decreased nearly 8%, hotel room costs, which declined 2.7%, and used cars, which dipped 0.4%.

Core inflation, a measure that excludes the more volatile food and energy sectors, rose just 0.3%, the smallest month-to-month increase since April. Year over year, core inflation was 5.9% in July, the same as June.

The CPI report for July showed a 1.3% month-to-month rise in the food at home index, as all six major grocery store food group indexes increased.

The index for nonalcoholic beverages rose the most, increasing 2.3% as the index for coffee jumped 3.5%. The index for cereals and bakery products climbed 1.8%.

The Associated Press noted that the inflation numbers, which were lower than anticipated, could mean the Federal Reserve raises short-term interest rates by a lesser margin when it meets in September.

Paula Wolf is a freelance writer

Here’s how to tackle high inflation

The inflation we’re seeing hasn’t been seen for decades. For many of you it is unprecedented. I believe it is critically important to concentrate on three things that can help you navigate inflation with the least possible damage to the business. You’re going to need a team including your best people in accounting, sales, purchasing, process improvement and human resources. They will have to share information like never before.   

Pricing Strategy – Nothing has a bigger impact on the bottom line than price. It is the longest lever you have in your tool kit. If you compare a price increase and a cost reduction of equal percentages, the price increase will always deliver a greater profit boost.  

You may not be able to pass every cost increase on to your customers. More on that in a minute. What you can do is your best possible job of market awareness. What are your competitors doing? Is the general pricing in the market rising and are you keeping pace?  

I’ve had clients who thought it was almost immoral to raise their prices. I’m certainly not suggesting price gouging, taking advantage of the inflationary environment. But if you don’t at least keep pace with the market and with a high proportion of your cost increases, you may find your profits disappearing. Price gouging doesn’t help your customers, but you going out of business doesn’t help them either. Find the right balance.  

Cost Control – Cost control is always important, but never so much as during a period of high inflation. You are facing potential increases in every cost that isn’t fixed by some kind of long-term contract.  

The first step in good cost control is good cost awareness. You’d be surprised how many small businesses have a very weak handle on the costs of their products and services. Cost data in ERP systems is often allowed to age to the point where the data is hardly useful. Make sure whatever system you use to track and report costs, whether a complex ERP system or a set of spreadsheets, reflects current reality. Task your accountants; make sure you have the right numbers.  

The next step is prioritizing the items you purchase, your products and services, and your processes for cost improvement. Pareto’s Law, the 80/20 rule is useful. 80 percent of your purchasing expense likely comes from something like 20 percent of the items you buy. 80 percent of your revenue may come from about 20 percent of your products or services, and 20 percent of your customers too. 80 percent of possible process cost improvements will come from about 20 percent of your processes, the ones most ripe for improvement.  

As quality guru Joseph Juran said, prioritize to focus on the important few, not the unimportant many. Identify the important few and get to work. Armed with good cost data and prioritization of your cost improvement efforts, you can begin to monitor and improve the cost of those most-important product/service lines, purchased items and internal processes.  

I have never worked with a business that couldn’t improve its costs, often significantly. It’s not that the people in the business aren’t capable of doing it. Often, it’s not a high priority when things are going well financially and there are plenty of other problems to solve.  

Sometimes it’s simply not seeing the forest for the trees. I’ve had many experiences of analyzing processes and having clients surprised to find the waste that could be eliminated. When we’re around something all the time we stop seeing the details.  

Make an action plan to examine every important product, service, process, and supplier. It’s essential.  

Wages and Employee Retention – Plan for wages and employee retention too. There’s no avoiding the pressure for wage increases with inflation approaching double digits. Don’t let events get too far ahead of you. Monitor wages in your markets. Factor wage increases into your pricing strategy and your goals for cost reduction in other areas.  

Don’t lose good people because you haven’t planned.  

Start today. Gather your team. Get help if you need it. Give your business its best shot at navigating inflation, surviving, and perhaps thriving.   

Richard Randall is founder and president of management-consulting firm New Level Advisors in Springettsbury Township, York County. Email him at [email protected]