For businesses of all stripes — but particularly smaller Main Street firms — margins are in focus.
Inflation has had an impact on these companies, as input costs have risen. The price of everything from lumber to wholesale goods to gasoline has been volatile.
PYMNTS data found that 40% of small- to medium-sized businesses (SMBs) remain more worried about inflation than one year ago. Fifteen percent reported being concerned about declining revenues, where 48% of the more than 500 firms surveyed said they would look to tap financing options to keep their operations running.
But in the latest reading from the U.S. Department of Labor, there are glimmers of hope for operating margins and cash flow.
The Producer Price Index (PPI) is generally defined as a reading on the inflation encountered by businesses as they buy the goods and the services they need to produce their own offerings that are sold to end users (consumers, among others).
According to PPI data released Thursday (July 13), the PPI for final demand rose 0.1% month over month in June, which was lower than the 0.2% that had been expected by economists. That measure is the change in prices for goods and services sold to other businesses, to government entities, and for export.
Drill down a bit and the intermediate reading, which measures prices paid, largely for commodities, declined by 0.6% for processed goods and 2.1% for unprocessed goods. And although, overall, services pricing was up 0.2%, transportation and warehousing prices slid by 0.9%, indicating that there is at least some relief here.
The PPI numbers are increasing at a slower pace than overall inflation/prices as logged by the Consumer Price Index (CPI), which showed that prices were up 3% overall last month. The logic is that there is a positive spread here, as revenues outstrip costs (at least some of them). It should also be noted that wage growth has been moderating, so that means some additional tailwind for margins.
The changes in the PPI usually are reflected, down the line, in the prices charged to end consumers, and a moderating pace here may bode well for household purse strings, which in turn gives some additional firepower to keep spending at Main Street businesses.
Call it a virtuous cycle, as smaller businesses can keep investing in making sure they have what customers want and can stay in businesses with a bit more breathing room. And their patrons have a bit more leeway to keep spending too.