Inflation Indicator, SMB Optimism, and Retail Sales Are Up

Hey, everybody, it's Gene Marks, and welcome to this week's episode of the Paychex THRIVE Week in Review. This is where we bring you a few items of news that happened in this past week and how they impact your small business and mine.

So first, some economic news that came out this past week that should be of interest to all of us. For starters, number one, the Producer Price Index rose more than expected. Now, the Producer Price Index is the rate of inflation – measures the rate of inflation – for wholesale prices, the price that businesses are paying, basically B2B. It is a leading indicator. If producer prices are going up, it's an indication that consumer prices will likely go up, as those prices are passed down to consumers over the months to come.

So, the Producer Price Index actually had a strong increase this past month. It is now at a rate of anywhere from 2.8% to 3.3% a year, depending on whether or not you exclude food, energy, and trade services or not. So, it's around 2.8% to 3.3% or around 3% is what producer price are doing.

So, it's ticked up. It is a rate that's been really significantly higher than it's been in a while, still significantly below the rates that we saw post-pandemic in 2022 when the rates themselves were up closer to between 11 and 12%. So, that's a good sign. We're nowhere near there, but, they've been steadily creeping up over the past few months, and it is a concern that we want to keep in eye of because we want to see if those producer prices are going to be impacting our businesses and our margins.

The big question is whether or not we will be passing down those prices to consumers, and we will be paying for more stuff at the retail level that remains to be seen.

Meanwhile, according to a report from Reuters, U.S. retail sales rose in July. There is a softening job market, which is a risk, but retail sales increased 0.5% in July. June sales were also revised up. Core retail sales also increased. Even though import prices also increased, there was a slight ebb in consumer sentiment, but consumers are out there still spending right now. It shows you that the U.S. consumer market remains strong.

Now, there were some big promotions during the month from Amazon and Walmart, and people are concerned that a softening labor market and rising inflation could have an impact on consumer sales. But right now, the consumers are out there buying and on the other side, net household worth still remains at historical highs thanks to a rising and historically high stock market, as well as wages themselves.

Wage increases are at around the same pace as inflation right now. So, we're not lagging behind. We're not significantly ahead. So, while that happens, while people feel they still have money in the bank, while the job market still remains fairly strong, although softening, consumers are out there still spending and they're not pulled off with the prospect of tariffs looming. So, potentially good news for small businesses.

Also, the National Federation of Independent businesses released their monthly Small Business Optimism Index, and it rose this month. Small business owners reported improving conditions. In July, there was a notable improvement in overall business health. When asked to rate the overall health of their businesses, 13% reported excellent, which was up five points. Fifty-two percent reported good. That was up three points. Thirty-one percent reported the health of their business was fair, which was down four points.

The net percent of owners expecting better business conditions rose 14 points in June to a net 36% seasonally adjusted. That rate is higher than the historical average. In July, 16% of small businesses reported that it's a good time to expand their business. That's up five points. And 22% of small businesses planned capital outlays in the next six months. That is up one point from June, but still below the historical average of 29%.

The takeaway is, again, despite tariffs, despite rising producer prices, despite potential softening in the job market, small businesses are still remaining quite resilient. They are still optimistic. They are still looking ahead to the coming months.

Now that I guess the tax and the regulatory environment are a little bit more certain and stabilized and legislation passing, we will see if tariffs have a big impact on them or not or if inflation significantly goes up. But for the most part, small businesses are reporting optimism.

That's the news this week. And you have been watching or listening to the Paychex Week in Review, a Paychex THRIVE podcast. My name is Gene Marks.

If you need any help or advice or tips on running your business, visit us at www.paycheck.com/thrive. You can sign up for a newsletter and get all sorts of advice for running your business, as well as back episodes of this podcast.

Thank you for watching and listening. We will be back with you next week with some more news items from the current week that impact your business and a few thoughts on those items. Until then, we'll see you.

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I'm your host, Gene Marks, and thanks for joining us.

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