Business Owners Struggle to Weather 'Energy Price Storm'
The small business engine is going into overdrive as the price at the pump continues to go up. Rising fuel costs have some local business owners thinking twice about expansion.
Bart Chilton, head of the Commodity Futures Trading Commission, knows this firsthand. “My brother and sister-in-law have an Italian restaurant and they were talking about hiring delivery drivers,” he told CNBC.com. “But last weekend, they decided to put that idea on hold due to gas prices.”
Chilton’s brother is not the only business owner feeling the pinch. This past week, the CFTC received a letter from 23 senators and 45 members of the House urging the commission to set energy position limits in an effort to slow down or halt the soaring gasoline prices.
“With a little math you can determine the ‘speculative premium’ on oil is about $23 a barrel, which translates into about an extra 56 cents for a gallon of gas, and that quickly adds up,” said Chilton. According to the International Monetary Fund, for every $10 increase in the price of a barrel of crude oil, the entire U.S. GDP is reduced by a half percent.
Congress members like Rep. Robert Andrews, D-N.J., agree speculation is one of the drivers pushing up gas prices, and say American families and small businesses are suffering because of this.
"Our economy will not bounce back if our gasoline markets continue to be artificially manipulated by Wall Street,” Andrews said. “This means some will have to go without basic needs just so they can fill their tank and make it to work, while small businesses will be forced to make even more salary cuts and layoffs. It's time for our government to stand up to the speculators that are slowing our nation’s growth and gambling on our recovery."
Stephen Schork, whose Schork Report keeps tabs on the energy market, disagrees with Chilton and Andrews that speculation is driving energy prices up. Still, he said, the impact of rising prices is real.
“Speculators are a symptom of events; they are not the cause of those events,” he said. “At the current pace, we calculate that per-person energy costs will top $5,000 this year.” Schork says that is up about $1,400 from 2009, and amounts to a $1,400 tax on the consumer. “That’s $1,400 that cannot be spent elsewhere in the economy — and that is not good for anyone,” he said.
Comments like this one, from Royal Palm Beach, Fla., barber Joseph Murratti Sr., are peppering the House Small Business Administration's Facebook page .
“The increase in the price of gas REALLY hurt my barbershop business here in Royal Palm Beach,” he wrote. “Many of my customers ... would have $100 to fill up their tanks with gas ... get a haircut & buy a lunch or two. NOW, they are lucky to just barely fill up the tank, so that means they put off the haircut for a couple of weeks. My income has been cut by a minimum of 40 percent.”
David Lesak, owner of Kasel Rocks Landscape in Allentown, Pa., wrote on the House Facebook page: “Our season started off extremely well, the best we have had. We were ready to hire an additional crew of three. ... Then gasoline prices started to increase, business started to fall off and we decided we could not afford a second crew. ... Within two weeks we were barely able to keep one crew working.”
The solution, of course, is to pass the price increase along to clients. “We are charging our customers $10 more for our cleaning services to cover the rising cost of gas,” the owner of a cleaning service in the affluent area of northern New Jersey told CNBC.com. “Some of our clients understand, but they, too, are feeling the strain.”
And the solution to that, says Rep. Sam Graves, R-Mo., chairman of the House Small Business Committee, is to “open up safe exploration and development to our domestic energy resources.”
“U.S. small businesses want lower fuel prices now," he said in a statement. "It is up to Washington to put aside political pandering to special interests. If we don’t, small businesses will suffer, and our recovery will be delayed.”
Rep. Fred Upton, R-Mich., chairman of the House Energy and Commerce Committee, expressed his frustration on rising energy costs with Energy Secretary Steven Chu at a subcommittee hearing on March 8.
Upton said his committee recognizes that rising gasoline prices are a burden on families and small businesses, “Simply put, energy is a jobs issue. We need affordable energy to fuel our economy. We’re working toward solutions to increase North American oil supplies and reduce regulations.”
But with a dysfunctional Congress, one business owner told CNBC.com he has little hope that Congress can come together to create an energy policy to avoid future price spikes.
“Energy prices have been politicized once again, and the small business owners are taking it on the chin,” said Steven Leyva, CEO of Gluten Free Crusader and owner of New Jersey-based Sugar Flake Bakeries. “This is not the first time we have weathered this energy price storm and I’m sure we’ll face it again."