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Pricing Power Gives Small Businesses Edge over Corporations
CHICAGO -- The ability to ratchet up prices gives nimble small businesses an edge over large corporations as the economy surges, fueling continued expansion and optimism, says Peter Glassman, senior economist for Bank One."Sales are up. Profits are up. Prices are up and hiring is up," Glassman wrote in the latest issue of Bank One's Small Business Review, a quarterly report on the economic outlook for small-business owners.Bank One's Small Business Review analyzes a quarterly survey conducted by the National Federation of Independent Business, then provides an economic explanation for the results, along with implications of the findings. The review also offers a monthly checklist to help small businesses manage their finances for growth.Small businesses are raising prices.During the past three months, small businesses raised prices at the broadest level in 15 years; 22% flexed their pricing power. Additionally, 27% of small businesses surveyed plan to raise prices during the next three months, up from 20% in the first quarter and 15% a year ago.Rising energy prices certainly contributed to price increases, but prices rose across the board at a level much higher than the historical average, Glassman said. Unlike large businesses, small businesses can quickly gauge customer response to price increases, making them more flexible. "Small businesses could fuel higher inflation for the United States all on their own," he wrote.Capital spending, hiring plans strong.Capital spending plans for the next three to six months remain strong at 34% of those surveyed, tied for the best quarterly number since the first quarter of 2000. Changes in tax laws that raised the depreciation deduction make buying vehicles and equipment more attractive. "We've now seen four straight quarters of significant increases, with more on the horizon," Glassman wrote.Small businesses will remain a hiring engine in the near term as 14% plan to add workers over the next three months. This is slightly below the 17% expected in the first quarter but well above the 8% level recorded a year ago. "Even better news is that job openings continue to increase," he wrote. "Small-business employment has grown considerably, keeping the national unemployment rate much lower than would otherwise have been the case."Credit conditions stay friendly.Interest rates may be rising, but they remain low historically, and credit conditions remain friendly on the whole. The Federal Reserve is expected to raise rates but remain accommodative. "At this point, rates are only going up. Small businesses would be wise to lock in their financing at today's rates even if they won't use it for a while," Glassman wrote.Bank One Corp., with assets of $320 billion, is the nation's sixth-largest bank holding company. Visit Bank One Corp.: www.bankone.com"