Rate of Wage Growth Likely to Turn Around, BNA Index Predicts

/PRNewswire/ -- The pace of wage growth in the private sector likely will pick up in the coming months from recent historic lows, according to the preliminary third quarter Wage Trend Indicator(TM) (WTI) released today by BNA, a leading publisher of specialized news and information.

The WTI rose to 96.97 (second quarter 1976 = 100) from 96.85 in the second quarter. If confirmed by the revised and final readings, it would be the index's first gain in more than two years, ending nine straight quarterly declines, dating back to early 2008.

"The increase in the latest WTI is pointing to an improvement in labor market conditions -- albeit a small one," economist Kathryn Kobe, a consultant who maintains and helped develop BNA's WTI database, said. "The rate of wage increases should show a turnaround in the coming months, but I think it's going to be a slow change in that direction," Kobe said.

Year-over-year wage and salary increases for private sector employees in the coming months are expected to equal or exceed the 1.6 percent recorded over the 12 months ended in June, as measured by the Department of Labor's employment cost index (ECI). During the past year, the rate of annual wage growth has ranged from a record low of 1.4 percent to 1.6 percent.

Reflecting recent labor market conditions, three of the WTI's seven components made positive contributions to the preliminary third quarter reading, while two components were negative and two others were neutral.

Over its history, the WTI has predicted a turning point in wage trends six to nine months before the trends are apparent in the ECI. A sustained decline in the WTI is predictive of a deceleration in the rate of private sector wage increases, while a sustained increase forecasts greater pressure to raise wages.

Contributions of Components

Of the WTI's seven components, the three positive components in the preliminary third quarter reading were job losers as a share of the labor force, from DOL; industrial production, measured by the Federal Reserve Board; and the share of employers planning to hire production and service workers in the coming months, also shown in BNA's quarterly Employment Outlook Survey. The negative contributors were the unemployment rate, reported by DOL, and economic forecasters' expectations for the rate of inflation, compiled by the Federal Reserve Bank of Philadelphia. Two components were neutral: the proportion of employers reporting difficulty in filling professional and technical jobs, tracked by BNA's employment survey, and average hourly earnings of production and nonsupervisory workers, from DOL.

BNA's Wage Trend Indicator(TM) is designed to serve as a yardstick for employers, analysts, and policymakers to identify turning points in private sector wage patterns. It also provides timely information for business and human resource analysts and executives as they plan for year-to-year changes in compensation costs.

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Analysis of GDP by Bart van Ark, Chief Economist of The Conference Board

/PRNewswire/ -- The expansion in Q3 GDP (3.5%) shows we have clearly begun to emerge from the trough. But there's still a long way to go, and we still don't know enough about the sustainability of these recovery signals. The comparatively good Q3 news is largely driven by temporary factors like an uptick in consumer spending -- notably through the U.S. government's "cash for clunkers" car sales subsidy program -- as well as an easing in inventory rundowns.

Q4 could bring even faster easing in inventory rundowns that accounts for all GDP growth (we forecast 3.1 percent). Consumer spending will fall flat during the holiday season, and exports will recover more slowly than in Q3. Any modest uptick in investments in equipment and software will most likely be offset by continued declines in commercial real estate.

A less powerful inventory boost with no positive offsetting contributors may well limit GDP growth to 1 percent in early 2010. We forecast growth to improve only moderately, to around 2 percent, by the middle of 2010. The savings rate will remain relatively high at 4.5 to 5 percent of disposable income, dampening improvements in real consumer spending, investment and trade.

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Tips for Small Businesses to Avoid Cash Reserves in a Recession

/PRNewswire/ -- As if the recession is not enough to deal with, for small and medium businesses that are growing during these hard times you need to be aware that your credit card processor may view your growth as a potential indicator that you are at risk of going under and institute cash reserves. Unfortunately the industry has learned from experience that some merchants, about to go under, commit fraud by processing bogus orders to bolster cash flow; which is seen by the processor as a spike in sales from the merchant. In a time where bankruptcies and business closures are rising it is only natural that processors are nervous.

An unfortunate byproduct of this negative behavior is that legitimate merchants showing too much growth over a short timeframe can also be branded as being at "risk." For those of you that may not understand the way the relationship between merchants and processors works, the processor is on the hook to pay for any consumer losses, chargebacks, if a merchant goes out of business and cannot, or decides not to, cover those losses.

This being said, it should be understood that a spike in sales is not the only reason a processor may want to implement reserves, there are a number of factors that are looked at. The point is if you are one of the lucky few merchants experiencing growth you can take proactive steps that could help you avoid the reserves scenario.

First: Open Communications -- Talk with your processor, tell them about your growth, show them recent press releases or financials that show your growth is in fact healthy. Make sure to talk about why you are experiencing growth in a down market. Did you reduce your prices? Do you have the market cornered? New hot product releases? Did you get better pricing on your goods?

Second: Set Expectations -- Let them know if you are going to be having any type of large promotion, sales event or hot new product release. No one likes to be surprised, and you don't want the processor to sound the alarm when they see your sales skyrocketing from sales of the next Tickle-Me Elmo craze they didn't even know you were selling.

Third: Customer Service Signals -- I can't say this with enough emphasis, you need to manage your customer service signals, chargebacks, credits and refunds. If you successfully open a dialogue and set expectations but your customer service signals don't support the story you are telling; you are going to have a tough road to travel.

Fourth: Create a Competitive Situation -- If you are experiencing significant growth, consider connecting to a second credit card processor and running a small portion of your transactions through the second account. This will reduce load on the first processor, making growth look smaller, and it provides you leverage to pressure your credit card processors to reconsider cash reserves.

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Small Businesses Lead U.S. Growth

12/20/07 Small businesses continued to lead growth in the U.S. economy in 2006, according to a report issued today by the Office of Advocacy of the U.S. Small Business Administration.

“Today’s report shows that overall, small firms continue to drive a resilient U.S. economy,” said Advocacy Chief Economist Chad Moutray. “In releasing this annual small business research report, we are pleased also to showcase new research by economists in the field of small business and entrepreneurship.”

Moutray released the report at a December 19 meeting of the Rotary Club of Washington, DC. The study, The Small Business Economy: A Report to the President for 2007, is Office of Advocacy’s annual report on the state of small business in America.

The report reviews the economic environment for small businesses in the year 2006, including the financial and federal procurement marketplaces. New research focuses on minority- and veteran-owned businesses, social entrepreneurship, and pre-venture planning. Other chapters and appendices provide data on small business and an update on Office of Advocacy initiatives.
The Office of Advocacy, the “small business watchdog” of the federal government, examines the role and status of small business in the economy and independently represents the views of small business to federal agencies, Congress, and the President. It is the source for small business statistics presented in user-friendly formats, and it funds research into small business issues.

For more information and a complete copy of the report, visit the Office of Advocacy website at www.sba.gov/advo. Print copies are also available upon request to the Office of Advocacy (202) 205-6933.