Business Costs in 2021. Click to keep Reading…

Business Costs in 2021. Click to keep Reading…

Kiplinger Letter is taking a shot at predicting business costs in 2021, even with all the economic uncertainty we are experiencing currently.

GDP – Expect the economy to return to growth in 2021, with a 3.5% increase in GDP. Don’t expect the economy to rebound completely until late 2022. The hospitality and leisure sectors will continue to struggle until a vaccine is widely distributed. Lingering uncertainty will help fuel a big increase in consumer savings (up to about 15%).

Inflation – Will pick up in 2021 to 1.8% from 1.1% in 2020. The level is still lower than normal, and the increase will be related to rising gasoline prices.

Prime Lending Rate – Remaining very low at the current 3.25% level. The 30-year fixed mortgage rate will also continue its historic low run at 3%. The drop in the corporate profits rate will rebound 30% in 2021.

Energy Costs- Recovering in 2021, but prices will not skyrocket. Increasing demand and an economic recovery will drive the upward trend. Electricity costs will increase slightly, and remote workers will pay more as they spend more time at home. Natural gas pricing will increase, but still remain lower than historical standards. The upward trend is in large part weather dependent.

Freight Shipping – Costs will vary based on mode of transportation. Trucking rates will rise slightly (up about 2%). The rail industry will face overcapacity, and rates will remain flat. Air freight is still experiencing a big rate increase, and it’s likely to decline as fewer commercial planes are hauling freight.

Pay Rates – Expected to rise to 2.5% (from 2% in 2020). Benefits compensation are difficult to predict related to the pandemic. The unknowns are related to paid sick leave, paid family leave, telecommuting, changes to child care policies and more. Payroll taxes will increase related to the increase in the wage base.

Health care Costs – On the rise due to pent up demand. Prescription drug prices will increase by 5% (vs. 3% in 2020). It’s expected that employer plans will cover a (new) COVID vaccine.

Travel related Costs – Excess capacity will drive lower prices, at least until bankruptcies start to eliminate that capacity.

Rental Rates – A slight increase for commercial rentals, but retail space will remain flat. A surge in e-commerce will drive an increase in rent for warehouse space (up about 2%).

Insurance – Budget more in 2021. Commercial property rates up 5-10%. Primary casualty insurance also up 5-10%, while umbrella and excess liability rates will increase anywhere from 10-25%.

Legal fees and accounting costs will also increase in 2021 (by 5-10%).

Technology and Telecom – Prices will fall by 5-10%, as demand shrinks. Wired bandwidth will be cheaper, but will vary widely based on location. Digital advertising rates will bounce back in 2021, after sharp decreases in 2020.

–2020 August 14. Kiplinger Letter, Vol. 97, No. 33.


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