El gasto de los consumidores desafía los temores inflacionarios, los propietarios de pequeñas empresas muestran confianza y la SBA ofrece una línea de crédito

Hey, everybody, it’s Gene Marks, and welcome to this week's edition of the Paychex THRIVE Week in Review podcast. This is where we take some issues, news items that are going on around the world, that impact your business and mine and we talk about them a little bit to make sure that we can navigate our way around them. So, let's talk about a few news items for this week.

The first or the biggest one this past week has to do with the economy. I mean, there are two big numbers that came in this week that really underscore the fact that the economy is doing pretty good. The first was retail sales numbers. So, this is reported, of course, all over the place. This is on CNBC, where I'm getting this from. Consumer spending held up even better than expected in July as inflation pressures showed more signs of easing. This is according to the Commerce Department. Advanced retail sales accelerated 1% on the month, according to numbers that are adjusted for seasonality, but not inflation. We'll get to inflation in a minute.

Economists were looking for a point at 3% increase. It was three times the amount of the increase that economists were expecting. Excluding auto related items, sales increased 0.4% – also better than what was forecast and in fact, four times what was better than what was forecasted.

A few other bits of notes from this report. Gains in sales are propelled by increases in motor vehicle and parts dealers, electronics and appliance stores, and food and beverage outlets. Miscellaneous retailers saw a plunge of 2.5%, while gas stations saw receipts climb just 0.1%, and clothing stores were about flat.

But even so, and this is according to an analyst at William Blair, “Once again, this further evidence that the U.S. consumer still has the ability to surprise to the upside. This was another solid report and inconsistent with the consumer who is on the brink of collapse.”

So, take that for what you will. It looks like the economy continues to do okay. Consumers are still spending. I believe that wages are keeping up with inflation for the most part, and household wealth is up. So, again, if you're in retail … I was about to say if you’re in retail, but honestly, everything is driven by the consumer and when we see that consumer spending continues to remain strong, that reverberates throughout the economy.

The second piece of news also about the economy … is about inflation, and the inflation numbers were very positive. Last week, the Labor Department's Consumer Price Index rose 2.9%, this is according to the Wall Street Journal. This is the smallest figure since March of 2021. Over the past six months, consumer prices have risen at an annual rate of 2.4%. The Federal Reserve's goal remains 2%.

Just be aware of some other ancillary numbers here, according to the Wall Street Journal. Core inflation that excludes energy and food was 3.2% year over year. Falling prices of goods have been offset by rising prices for services, especially shelter. Rents climbed 0.5% in July, which is an acceleration from previous months. And while declining, prices are great. If your car breaks down, Americans are paying much more than they did a year ago for a range of items, including auto insurance. Auto insurance rates are up almost 19%, guys, over a year ago. Childcare is up 5%. Fast food is up 4.3% and internet services is up 4%.

So, you know, it's a mixed bag on inflation. The overall inflation number of 2.9% is a positive sign. We're heading towards the Fed's goal of 2%. A lot of people do expect that with the strong consumer demand and, you know, inflation staying where it is that the Fed could very well start decreasing interest rates this fall, I do expect to see that. I am expecting by the end of the year, we'll probably see a half a point. They'll probably do it in two quarter point decrements.

The only thing I can warn you is it's not going to be a huge impact on your life in the economy yet. You were talking about the prime rate maybe going down from 8.5 to 8%, but it's definitely a step in the right direction. So, you can plan on that as well.

Next bit of news come through the National Federation of Independent Businesses. Because of this, I would imagine, U.S. small business consumer confidence jumped to the highest level in nearly two and a half years, just another indicator of the financial market fears of recession following last month's decrease in unemployment rates were likely overblown.

The NFIB said on Tuesday that their index rose 2.2%. It's the highest reading since February of 2022. So again, small businesses are also feeling more confident. I think that's, you know, an indication that the continued strong consumer spending, as well as inflation, are having their effects. And I think that's also good news for the economy.

All right, the last bit of news I wanted to share with you is a new bit of news released by the Small Business Administration just this past month, and they just released more information about their new working capital line of credit.

I wrote about this in the Philadelphia Inquirer, so I don't really have to refer to anything when I tell you about it. It's something very, very interesting for us as business owners. Now, the SBA is a great place to go for loans. Remember, the Small Business Administration does not give loans, they guarantee loans. It's a federal-backed guarantee through their network of banks and other lenders across the country.

Their most popular program is a 7(a) loan program. It's called 7(a), and the other one is a micro-loan program. Both these programs – a 504 program it’s called – you can borrow like up to $5 million, use it for inventory, equipment, working capital, to buy another business. It's pretty good stuff, right?

Well, they just introduced a new form of financing. It's a working capital line of credit. And again, you can get it up to $5 million. But here's the difference: It's a line of credit. So, if you get approved for up to $5 million, you can take out $1 million if you want to use it for inventory or payroll or other types of working capital needs that you have, but you're only going to pay interest on what you've taken out of a line of credit. If you get it … previously, if you get these other loans, you've got to take a $5 million loan to pay interest on that. Here with this line of credit program, you get a line of credit for that amount, but you only pay interest on the loans that you're actually taking out under that line of credit.

That's a huge deal. Now, the interest rate is higher. It's like 4 to 5 points higher than the bank's stated rate, which is prime rate for the most case. So, it's like four or five points higher over prime, which could be 12, 13, 14% for your business. You might be like, wow, that's you know, that sounds kind of high for interest.

However, however, many of us, many of my clients use credit card financing for their working capital needs, and the SBA knows this, and that's what they're going after. If you're using your credit card line of credit to get advances for your business, there's nothing wrong with that, it's just that you're paying a lot in interest – anywhere from 18 to 40%, depending on the card that you might have.

Now, if you get a line of credit through this new Small Business Administration program, yeah, you might be paying 13, 14, 15% in interest, but it's still significantly less than what you'd be paying under a credit card. The working capital. A line of credit from the SBA is something you should look into. Go to SBA.gov or check out an SBA lender.

My name is Gene Marks and you have been watching and listening to this week's episode of the Paychex THRIVE Podcast Week in Review. Thank you so much for listening. And remember, if you need any advice or tips or help in running your business, you'd like to see past episodes of this podcast, subscribe to our Paychex THRIVE newsletter. Go to paychex.com/thrive.

Again, thanks for listening and watching. We will see you again next week. Take care.

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