Pentonomics – Two Different Worlds

May 12, 2011 at 11:18 AM

Yippee! Consumers continue to dig themselves deeper into debt. Consumer credit has now increased two quarters in a row after falling 1.7% during all of 2010. In the fourth quarter of 2010, Americans increased their borrowing at a 2.1% annual rate and in Q1 2011 that borrowing picked up the pace to 3.0%.

Maybe consumers need to borrow more because prices for the stuff they buy keep rising. Import prices jumped 2.2% from March to April and soared 11.1% YOY.

But not surprisingly, all of this inflation and borrowing isn’t helping the economy. The National Federation of Independent Businesses (NFIB) put out a survey of small business sentiment this morning. The Small-Business Optimism Index dropped for the second month in a row, down to 91.2 in April and the report also stated that small businesses posted a substantial increase in the number of owners who reported raising selling prices. Here are some more highlights from the report:

  • In April, a net 12% reported raising average selling prices, a 3 point gain from March and 23 points higher than last September. A net 24% planned hikes in average selling prices in April.
  • The net percent of owners expecting better business conditions in six months slipped another 3 points to negative 8%, 18 percentage points worse than in January. Uncertainty is the enemy, and there is plenty of it to convince owners to “keep their powder dry”.
  • Only 50% of all firms reported making capital outlays last month, down 1 point from the month prior. The percent of owners planning capital outlays in the next three to six months fell 3 points to 21%, a recession level reading.  Money is cheap, but most owners are not interested in a loan to finance equipment they don’t need.  Prospects are still uncertain enough to discourage any but the most profitable and promising investments.

The business condition of large multi-national corporations looks much better because of the falling dollar. But small businesses earn revenue in dollars and sell to the domestic economy. So there you have the two different worlds. If you are a big business or a wealthy individual things look ok. If you are in the middle class or own a business that sells to just Americans…the recession continues.