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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: John Madarasz who wrote (50859)	5/15/2000 10:38:00 PM
From: Jacob Snyder	Read Replies (1) \| Respond to of 99985

inflation watch: May 15, 2000 Small Businesses Raise Prices, Indicating Inflation is Looming By RODNEY HO Staff Reporter of THE WALL STREET JOURNAL Small businesses across the U.S. have begun to raise prices aggressively, passing along their higher labor and raw-material costs in a sign that inflation is heating up after years of being under control. One quarter of small businesses surveyed reported raising prices in April, as opposed to the 7% who said they cut prices, according to a monthly survey of small businesses by the National Federation of Independent Business, the nation's largest small-business lobbying organization, with more than 500,000 members. That marks the second month in a row that price increases among small businesses were more than triple the number of price reductions, representing the strongest evidence of inflation that the survey has found in more than a decade. See the full text of the small business economic survey. Small businesses, which represent about half the nation's gross domestic product, are considered a leading indicator when it comes to inflation. William Dunkelberg, a Temple University professor and chief economist for the NFIB, said bigger businesses, which face more international competition, have a harder time raising prices in reaction to early signs of inflation. What is more, the services sector, for which wages constitute a high percentage of costs, is heavily populated by small businesses. Other price indexes show inflationary signs, too. The Labor Department's consumer-price index rose 0.7% in March, or 0.4% excluding the volatile food and energy categories. That was the biggest increase in nearly a year. The April numbers come out Tuesday. "I don't see any relief on prices the rest of the year," Mr. Dunkelberg said, adding that higher labor costs are the strongest force fueling inflation, followed by recent price increases for energy and raw materials. He expects the increase in the consumer-price index to exceed 5% this year, compared with the 2.7% rise in 1999. The small-business index, which Mr. Dunkelberg has conducted for 27 years, is based on a sampling of NFIB's members, and measures capital spending, inventory, hiring and other factors. Mr. Dunkelberg said the survey is one piece of information Federal Reserve Chairman Alan Greenspan uses to gauge business activity and has been a solid predictor of inflation and labor-related trends. Ken Bentz, president of Harrisburg Wall & Floor Covering in Harrisburg, Pa., said he recently raised his retail prices 3% to 4% because of higher material prices, increased delivery costs and higher wages. He said he might have to boost prices further soon. "The past five years have been great, with almost no inflation, but I think the honeymoon is almost over," Mr. Bentz said. The price increases come even as businesses continue to seek more efficient and productive ways to operate. Mr. Bentz, for instance, has cut carpet and flooring deliveries to his store to once a week from daily to offset increased freight charges caused by higher energy prices. The survey indicated the highest reading ever for the number of small businesses raising employee wages, as a result of tight labor markets. Not surprisingly, a record 34% of firms reported "hard-to-fill" job openings. Doug Hansen, president of Airbag Service International LLC, Seattle, said he had no choice but to raise wages for his employees an average of 10% during the past year. "That's the only way we can get experienced people," he said.

To: John Madarasz who wrote (50859)	5/15/2000 11:05:00 PM
From: Jacob Snyder	Read Replies (1) \| Respond to of 99985

thanks for that article: So, this summer, we are likely to see the combination of: 1. an aggressively raising Fed 2. inflation red flags 3. a slowing economy I'm only 30% cash. Is that enough? I'm beginning to think that the market may reach its nadir for the year, in the time between the May and June Fed meetings. After tomorrow, no one is going to be convinced yet that the Fed is through. But after the June meeting, especially if they raise by another 1/2%, and the economy looks to be definitely slowing enough to stuff the inflation genie back in its bottle, then the worst may be behind us. And all the scared money on the sidelines (like mine) may flow back into stocks. Of course, if the economy keeps roaring ahead, and the inflation genie looks like she wants to stay with us for an extended visit, then the market will keep sliding.