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How Gas Prices Affect Small Business And The Economy

Gas prices are known to fluctuate a few cents every now and then, but drastic increases and drops create volatility in the market and the overall economy. Volatile gas prices, more than fluctuation, have the largest negative effects on small businesses. Without a steady rate for fuel and energy costs, businesses have a difficult time budgeting and allocating working capital and other resources.  Our infographic below, How Gas Prices Affect Small Business And The Economy, illustrates the effects of the ebb and flow of gas prices on small businesses in a variety of industries and the overall toll it takes on the economy.

Gas Prices Affect Small Business and the Economy

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Gas prices rise, gas prices fall and small businesses feel the effects

Gas Prices and Business

72% of small businesses are affected by rising energy costs.

When Gas Prices Increase:

  • Shipping and wholesale costs increase
  • Small businesses pay more for goods

When Gas Prices Decrease:

  • Shipping and wholesale costs decrease
  • Small businesses pay less for goods

Customer pays the same due to locked in retail pricing and advertising. Small businesses take a smaller profit margin on every transaction. Consumers shop at larger businesses for cheaper prices. Larger businesses have higher elasticity and are able to adapt quickly to change.

Fun Fact: Some small businesses benefit from higher fuel costs, such as those working with alternative energy and ones that offer domestic savings.

What Happens to Small Businesses When Gas Prices Are Unstable?

  1. Gas prices are fluctuating.
  2. Small business owners are unable to predict a steady NOI.
  3. Decisions based on NOI are difficult to make.
  4. Small businesses have a difficult time predicting whether the need to hire, fire, or maintain current employees.

Between 2012 and 2015 gasoline prices have fluctuated from under $2.00 to over $5.00 per gallon. The national average for a gallon of gas in 2014 was $2.048, and in 2015 $3.279 per gallon.

41% of small businesses altering hiring plans due to energy costs. 22% of small businesses report reducing employee hours because of high energy costs.

Did You Know? Volatile gas prices, more so than rising or falling, has the highest negative effect on small businesses.

Businesses That Are Positively Affected By Lower Gas Prices:

  • Food Trucks – Eliminate 1 entire day’s worth of gas purchases to relocate and run a generator for electricity and gas for the kitchen.
  • Moving Companies – Lower hourly rates because lower percentages of revenue have to be reinvested into fuel costs for large trucks and vans.
  • Landscaping – Because the cost of the fueling vehicles and equipment has dropped (saving $100s a week), the extra revenue has been invested in creating more jobs.
  • Delivery – Reduces delivery fees, customers spend more.
  • At Home Service – Plumbing, landscaping, carpet or floor installation, etc.
  • Shipping – Shipping and handling costs have significantly dropped and/or small businesses are able to offer free shipping, thus stimulating more consumer purchases.
  • Transportation – Reduces ticket prices, more people travel, happier customers.

Businesses That Are Positively Affected By Higher Gas Prices:

  • Alternative Energy
  • Hybrid and Compact Vehicles
  • All “Green” Focused Companies

When gas prices decrease, these small businesses are able to increase production, lower prices, and attract more consumers.

Gas Prices And The Economy

The Effects of Small Businesses on the Economy

The success of small businesses is vital for the health of the nation as they account for:

  • 7% of U.S. employer firms
  • 64% of net new private sector jobs
  • 2% of private sector employment
  • 9% of private sector payroll
  • 46% of private sector output
  • 43% of high tech employment
  • 98% of firms exporting goods
  • 33% of exporting value

Lower Gas Prices And Consumer Spending

Lower gas prices result in an increase of disposable income, which is likely to be spent on things such as dinners at local restaurants, extra purchases at grocery stores, etc.

Fun Fact: This, disposable income, is estimated to be $40 billion in 2015.

Did You Know? Consumers are likely to spend two-thirds of their gas savings.

Top Industries that Benefit from Increased Disposable Income Among Consumers:

  • Travel
  • Office supplies, stationary, gift stores
  • Newspaper and print industries
  • Recreational vehicles and boats
  • Printing
  • Cement and concrete manufacturing
  • Furniture
  • Lumber and other construction materials

This infographic brought to you by National Funding.

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