Rising Costs Taking Toll on U.S. Businesses

Washington, DC, July 21, 2008--More companies in the U.S. say they will increase prices and hold the line on hiring as rising raw-material costs hurts profits, according to the National Association for Business Economics.

Almost four times as many businesses plan to charge their customers more next quarter than expect to reduce prices, according to NABE survey. Nine percent of employers said they would increase payrolls over the next six months, the fewest in five years.

NABE said its quarterly poll found a split on growth expectations.

"Respondents to the July NABE Industry Survey were more varied than in the decidedly downbeat April survey about recent results and the next few quarters, but they were far from ebullient," Ken Simonson, chief economist of Associated General Contractors of America, said in a statement.

Of the survey's 101 respondents, 44 percent forecast annual gross domestic product (GDP) growth above 1.0 percent in the second half of the year. Forty-five percent saw sluggish growth between zero and 1.0 percent and 10 percent expected a decline.

The US government estimated first-quarter GDP growth at 1.0 percent; the initial estimate of second-quarter growth is due July 31.

"More firms reported higher sales, but also higher materials costs and lower profits, in the second quarter than in the first quarter," Simonson said.

Firms' demand for goods and services surged 44 percent in the April-June period, representing a sharp rebound from the April figures.

But at the same time a record 75 percent of respondents reported higher materials costs in the past quarter, the most since 1994, and expect to pay more in the current quarter, NABE said.

Seventy-seven percent of the panelists expect non-labor costs to increase in the current quarter.

Thirty-five percent of respondents said their firms raised prices in the latest quarter, the highest percentage since April 2007, the NABE said.

"Hiring plans for the next six months are cautious, although slightly more firms plan to add jobs than cut them," Simonson said.

The survey showed fewer firms were pessimistic about their outlook for 2008 compared with the first quarter.

Print the Article