kiplinger connection
The Economy • Business Costs • Small Business

The Economy: Gas-price jump will likely be short-lived.
Business Costs: Mixed news on May 14 postal rate hikes.
Small Business: Lenders will focus less on personal credit scores.

The Economy
Back on the agenda: $3-a-gallon gasoline on a national average. Mishaps at refineries in the U.S. and Europe make this likely by Memorial Day. But as stricken refineries come back on line ...
The brisk price run-up should lose steam fairly quickly.
Average 2007 gas prices will still be lower than last year’s ... down 15¢ to $2.45 a gallon. For diesel ... a dime lower at $2.60 a gallon. Of course, this assumes an active hurricane season doesn’t wreak havoc on refineries and oil-producing installations in the Gulf Coast region.

Cheaper average gasoline costs won’t do much to lower inflation.
We expect the Consumer Price Index to increase about 2.3%, with the core CPI ... which excludes food and energy ... gaining 2.6% or so. The core, closely monitored by the Federal Reserve, is heavily influenced by trends in rents, which are going up as growth in homeownership slows. More generally, rising wage and other business costs will fuel inflation.
The economy is far from the feared stagflation scenario, however.
It’s more like “slugflation.” In historical terms, price growth remains quite low. And despite growing worries about the housing slump, the economy continues to draw fundamental strength from consumers. Consumer spending remains on course for a decent 2.7% increase this year.

Next year will bring another big leap in heavy-equipment exports. They’re likely to advance 30%, to $18 billion, after a 35% increase this year. Brisk infrastructure, commercial, and residential building in Latin America, Asian-Pacific nations, and Canada is fueling demand for U.S.-made earthmovers, road pavers, excavators, tunnel diggers, etc. Exports are also gaining on domestic sales ... about $25 billion this year.
This is a bright spot for the beleaguered U.S. auto industry. It supplies the engines, wheels, electronic systems, and other components.

Business Costs
Reform of rail fuel surcharges should help cut shippers’ bills. Regulators are forcing rail freight firms to calculate surcharges based on specific details of a shipment, such as actual mileage and weight. Fees based on a fixed percentage of the value of a freight contract will no longer be the norm.
Regulators will root out double charges. Freight haulers often impose a separate fuel levy on top of another surcharge based on an index of industry costs that already includes fuel.
Shippers still need to be extra vigilant about the accuracy of mileage and other details that haulers will use to determine surcharges. It may be worth shelling out a few hundred dollars to buy specialized software that accurately calculates rail distances.

Mixed news on postal rate hikes: The Postal Regulatory Commission is likely to scale back May 14 increases on large envelopes and catalogs from the previously announced 20%-40%. But on letter-size bills, invoices and sales and fund-raising pitches ... a double-digit jump instead of 9.5%. However, these revisions probably won’t happen until after May 14. That means the previously announced hikes will be in effect temporarily.
A nearly 12% increase for magazines and journals will be delayed to July 15, maybe later. Publishers, processors and the Postal Service need time to update software, since the items are in a new mail category.

Small Business
It pays to be an angel. States are rolling out new tax credits for investors ... wealthy people, or groups composed of them ... who finance fledgling companies. The credits will help boost investment by angels to a total of $30 billion a year by 2010 from $25 billion now.

Banks have better ways to gauge small firms’ creditworthiness. Statistical databases, such as the Small Business Financial Exchange, are attaining a critical mass of financial information for banks to tap.
Lenders will focus less on personal credit scores commonly used to assess loans for sole proprietors or firms with only a few employees.