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Hopes for a Strong Holiday Season Rising
ST. LOUIS, (PRNewswire) October 9, 2005 - Consumer expectations, battered by natural disasters and high oil prices, rebounded after taking a steep dive last month, according to the October results of RBC's CASH Index (Consumer Attitudes and Spending by Household Index).

The telephone survey, of 1,000 individuals across the United States, was undertaken from October 3 to 5, 2005. Last month was the first time the RBC Expectations Index had been a negative number since its inception in January of 2002. (The Expectations Index was set at 100.) In fact, the Expectations Index had been falling throughout the year, from 79.6 in January to 32.2 in August. While 0.9 represents the second lowest number in the survey's history, it does signal a reversal in consumer outlook as the economy heads into the holiday season.

"The end of the American consumer seems to have been greatly exaggerated," said Vince Boberski, chief economist for RBC Dain Rauscher. "Images from the Gulf hurricanes still linger, and filling up your tank still takes a bite out of the pocketbook. But some moderation in oil prices and continued solid underlying conditions in the labor market have begun to point toward a brighter holiday season than many would have predicted just one month ago." However, Boberski cautioned that winter spending could be constrained after homeowners see their first heating bills, which will reflect the elevated prices for natural gas and home heating oil.

Improved expectations lifted the overall Index to 66.8, compared to 61.5 in the previous month. The Index had been on a yearlong slide from a high of 104.8 in August of 2004. The RBC Expectations Index stands at 0.9, compared to last month's figure of negative 13.5. This increase in expectations contributed to an overall improvement in consumer confidence, which had been trending downward since August of this year.

Respondents, however, made clear that the economy is by no means out of the woods. The RBC Current Conditions Index, for example, saw a slight decrease, falling to 90.7 compared to 92.0 from the previous month. Similarly, the RBC Investment Index declined to 78.0 from 80.7. Only 23 percent rated their personal finances as strong, compared to 28 percent the previous month.

But the RBC Jobs Index rebounded well, standing at 119.5, effectively tying its high for the year, in June, and surpassing its 111.7 level from the previous month. When asked about the likelihood that they personally or someone they know will lose their job in the next six months due to economic conditions, a majority (52 percent) said that is not likely, with fewer than one in five (17 percent) reporting it is likely (compared to 51 percent not likely and 19 percent likely in the previous month).

Rising Energy Prices Replace Interest Rate Hikes as No. 1 Concern of Small Business Owners
ST. LOUIS, (PRNewswire) October 9, 2005 - Concerns about higher energy prices and other increasing costs are growing among small- and mid-sized business owners across the United States. Nearly half intend to raise customer prices, with 19 percent planning to boost prices 5 percent or more, thus signaling an increase in inflationary pressures, according to the PNC Economic Outlook survey.

Their outlook for sales, profits and hiring for the next six months has moderated amid a decline in their optimism about the U.S. economy compared to this past Spring's record high levels and on a par with one year ago, the survey found.

The survey was conducted for The PNC Financial Services Group, Inc. (NYSE:PNC) in August through early September with responses from approximately 1,093 business owners and executives nationwide. Those responses compiled after Hurricane Katrina were little changed from the pre-storm answers. The survey, conducted every six months since Spring 2003, gauges their mood and sentiment about business expectations, economic factors and other issues.

"The survey found that higher energy prices are the dominant concern for business owners and are tempering expectations for the next six months," said Stuart Hoffman, PNC chief economist. "Their concerns about higher costs for energy, supplies and labor were growing since Spring and then exacerbated by Hurricane Katrina. These issues combined with a near majority of owners now planning to exercise pricing power and boost selling prices equates to an early warning of elevated inflationary pressures."

Conducted by Harris Interactive, a global market research firm, the survey reveals the following results:

Owners' Greatest Concerns: Lingering concerns about two national issues - higher energy prices and further hikes in interest rates - led to the second straight dip in the survey respondents' outlook for the U.S. economy as a whole.

Ranking of Issues: Higher energy prices (40 percent) rose to No. 1 as the issue that would have the greatest negative impact on their company's performance. It was followed by the likelihood of further interest rate increases (21 percent) and cost/availability of health insurance (18 percent). This past Spring, the order was interest rates (26 percent) first, followed by cost/availability of health insurance (24 percent). Energy prices (18 percent) were ranked third.
Attitude about U.S. Economy: 16 percent are optimistic (rating 8-10 on a scale of 1 to 10) and 61 percent are moderately optimistic (rating 5-7) about the national economy for the rest of 2005. This compares to the 20 percent who were optimistic in the Spring and the 30 percent in Fall 2004.
Attitude about Local Economy: Compared to the national outlook, their local view is slightly better as 22 percent are optimistic (rating 8-10 on a scale of 1 to 10) about their area economy and 59 percent are moderately optimistic (rating 5-7). This compares to the 26 percent that were optimistic in both the Spring of 2005 and Fall 2004.

The owners' tempered optimism about the prospects for the U.S. economy is influenced by their escalating concerns about costs of doing business. About half, however, plan to pass along some portion of these cost hikes by raising prices to their customers.

Prices Paid to Suppliers: 65 percent expect increases (compared to the PNC survey's record high of 67 percent last Spring) while 30 percent expect no change (down 2 percent) and 3 percent expect decreases (unchanged).
Prices Charged to Customers: 46 percent expect increases (compared to the survey's high of 50 percent this past Spring), 49 percent expect no change (down 4 percent), and 4 percent expect decreases (down 1 percent).

Of those business owners who plan to raise prices, 70 percent plan price hikes of 3 percent or more. Nearly three out of four (72 percent) attribute the increases to the need to preserve profit margins while 25 percent said more favorable business conditions allowed it.

Of the respondents who did not intend to raise their prices, 52 percent said market conditions were not strong enough, 22 percent said productivity growth is helping to contain costs to avoid price hikes and 19 percent are trying to preserve revenue levels and will not raise prices even if it trims profit margins.

"These new results show that small business owners feel they are managing their operations as efficiently as possible and will use the factors that they control, like pricing and compensation, to adapt and maintain profit margins," said Jeffrey Schmidt, who oversees PNC's small business banking division.

Owners' Outlook for Business Performance: The outlook on sales, profits and hiring over the next six months moderated when compared to the Spring survey's record high levels.

- Sales: 63 percent expect increases (down 7 percent from Spring), 27 percent expect no change (up 4 percent), and 9 percent expect decreases (up 4 percent).
Profits: 54 percent expect increases (down 5 percent from Spring), 32 percent expect no change (down 2 percent), and 13 percent expect decreases (down 3 percent).
Hiring: 29 percent expect increases (down 5 percent from Spring), 65 percent expect no change (down 2 percent), and 6 percent expect decreases (up 2 percent).

Rising costs for workers' wages and benefits remain an issue, but sentiments among business owners are mixed on the impact on hiring. PNC's survey found that 64 percent expect the cost of health care for their employees to increase (compared to 71 percent last Spring) and 57 percent expect compensation paid to workers will also go up (compared to 62 percent last Spring).

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