(This column originally appeared in The Hill)
They say inflation is down to just 3.7 percent, which is a lot better than the levels we saw a year or so ago. But it’s little consolation to my clients who are running small and mid-sized businesses. That’s because inflation is still going up — and it’s adding to what’s already a much bigger problem.
Since President Biden took office, just about all of my clients (and businesses in this country) have seen their core operating, service and production costs rise more than 20 percent. In some cases, it’s even higher. I know this because I’m an accountant — I see their numbers. But you don’t have to believe me; just look at the some of the data from the U.S. Bureau of Labor Statistics.
Since January 2021, the cost of construction materials has risen 29 percent. Overall manufacturing costs are up 23 percent. Iron and steel costs are 28 percent higher. Industrial chemicals cost 22 percent more. Those who want to purchase new equipment are paying an additional 29 percent over what they paid before the president took office. Domestic shipping costs are up about 29 percent since 2021. Packaging costs for these products are up 41 percent.
My clients in the food industries that need refrigeration and HVAC equipment are paying 36 percent more for these items and 17 percent more for the wholesale food products they sell. Businesses in agriculture and farming are shelling out 19 percent more for animal feeds and 28 percent more for fertilizer than just three years ago.
For all businesses, the cost of utilities has risen 31 percent since Biden’s inauguration. Property and casualty insurance rates are now 8 percent higher. Health insurance is 6 percent higher (and expected to take their “biggest jump” in years). The cost to lease a business vehicle is up 44 percent, and if you want to lease commercial space, you’ll pay 7 percent more than you would’ve in 2020.
Labor is much more expensive too. Average hourly earnings during the past three years have risen from $29.92 to $33.82 or 13 percent. The overall employment cost index for all workers is 11 percent higher than it was at the beginning of 2021. And that’s not including the unmeasurable costs of complying with all the new and proposed regulations from the Department of Labor, OSHA, EEOC and NLRB, which are now fully staffed with the president’s appointees. Supporting unions, mandated pay and federal overtime rules that require companies to increase compensation isn’t helping.
Want to get a business loan? The prime rate has risen almost three times from 3.25 percent in January 2021 to 8.5 percent now, and that’s for a bank’s best customers. Most small businesses, if they’re able to get a traditional bank loan as credit tightens, will find themselves paying two to three points higher than the prime rate. Or they’re facing rates that are twice that amount if they choose to get their financing from private lenders, merchant loans or credit card advances.
I added up all these core costs and it averages between 20 to 30 percent. It’s unscientific. But take a look at these numbers and you’ll agree that they’re shared by all of the country’s 30 million small businesses, which includes 6 million that have employees. If you do the analysis further by industry — like agriculture and food services — you’ll see that for some, the costs are even higher.
What are businesses doing? They’re raising prices where they can. They’re cutting overhead and investing in technology where possible. They’re putting fewer meatballs in their dishes, smaller products in their packages and reducing services around their products. They’re eliminating product lines, sub-leasing extra space, looking for new channels, innovating and partnering with their competitors. They’re dancing, scrambling and hopping in order to deal with the new normal of 20+ percent higher overhead and materials costs. A rising number of them are declaring bankruptcy.
Not all of this is President Biden’s fault. He inherited an economy that was crippled with supply chain issues and other shortages caused by a once-in-a-lifetime global pandemic. He was responsible for trillions in government spending, but trillions more was already spent by Congress before he even took office. His trusted economic advisers at the Treasury Department and Federal Reserve misinterpreted their data and were late in acting to suppress inflation and are now playing catch up. External factors like the war in Ukraine, OPEC’s nose-thumbing and China’s economic woes are also having an effect.
Ever wonder why Biden’s poll numbers are so low? It’s not just his age or his son or some of the questionable decisions he’s made. It’s also because there are 30 million voters — and their employees — who are struggling with significantly higher costs and a greater number of headaches, and much of it has happened under the president’s watch.