Higher costs pressured businesses in 1st quarter

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Associated Press

Posted on April 21, 2014 at 2:03 AM

Updated Monday, Apr 21 at 5:37 AM

NEW YORK (AP) — Rising costs for materials and labor appear to be pressuring businesses, according to a quarterly survey from the National Association of Business Economics.

During the first quarter of the year, 31 percent of businesses surveyed reported higher material costs, more than double the 15 percent that saw costs rise in the previous survey. Additionally, 35 percent reported rising wages and salaries at their businesses in the past three months, up from 23 percent in January.

Yet those who said they raised the prices they charge in the past three months remained unchanged at 20 percent, according to the latest NABE survey of 72 members, which was conducted between March 18 and April 1.

"It appears that businesses were not able to pass on costs increases, resulting in increased pressure on margins," the survey findings said.

The quarterly survey by NABE is intended to gauge business conditions at members' firms or industries. The April survey reflects first quarter results, as well as the near-term outlook.

Despite the cost pressures, businesses seem more upbeat about the direction of the broader economy. The survey found that 80 percent said they expect the GDP to rise at least 2 percent over the next year. Nearly three-quarters also said they expect labor market conditions to improve, with unemployment easing to between 5 percent and 6 percent in the next one to three years. And over the next six months, 43 percent of respondents expect their firms to expand employment.

Still, a majority expect wage growth to remain subdued, with growth of up to 3 percent over the next three years.

The number of businesses that reported rising sales in the first quarter fell to 53 percent, down from 63 percent in the previous quarter. Jack Kleinhenz, president of NABE and chief economist at the National Retail Federation attributed the decline to "a very rough winter" in a statement.

Capital spending rose for 38 percent of respondents, up from 28 percent in January. Meanwhile, those reporting rising profit margins during the period declined slightly to 32 percent, from 34 percent in the previous survey.

Looking ahead to the coming quarter, 41 percent said they expect costs to increase up to 5 percent. Whether they'll be able to pass that on to customers is uncertain; 31 percent said they expect their businesses to raise prices. That's down from the 43 percent who said they planned to raise prices in January, but still an elevated level from most of last year.

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