U.S. Companies to Raise Prices Amid Soaring Costs, Survey Says

By Timothy R. Homan

July 21 (Bloomberg) -- More companies in the U.S. plan to boost prices and limit hiring as the surge in raw-material costs hurts profits, a private survey found.

Almost four times as many businesses plan to charge their customers more next quarter than expect to reduce prices, according to the National Association for Business Economics. A net 9 percent of employers said they would increase payrolls over the next six months, the fewest in five years.

The report reinforces concern that rising expenses will contribute to a further pickup in inflation and a weakening in the labor market. A net 71 percent of firms said costs rose last quarter, up from 65 percent in the previous three months and the most since records began in 1994, the poll showed.


``The rising costs of materials and other non-labor inputs are a big concern and a big drag on profitability,'' Ken Simonson, chief economist for the Associated General Contractors of America in Alexandria, Virginia, and board member of the business group, said in an interview.

The number of respondents saying profit margins declined last quarter exceeded those registering gains by 13 percent, the biggest differential since the 2001 recession.

Soaring expenses for raw materials forced businesses to pass on higher costs to consumers last quarter, the survey showed. A net 28 percent, the highest since the first quarter of 2007, said they increased prices from April through June.

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

Fannie, Freddie

The poll was taken between June 19 and July 10, raising the possibility that most respondents hadn't had a chance to take into account the latest turmoil in financial markets following concerns about the viability of Fannie Mae and Freddie Mac. The report included responses from 101 members of the business economists group.

On July 13, Treasury Secretary Henry Paulson sought blanket authority from Congress to buy equity stakes in, and lend to, Fannie Mae and Freddie Mac, aiming to stem the collapse of confidence in the largest sources of U.S. mortgage financing.

Federal Reserve Chairman Ben S. Bernanke last week abandoned his June assessment that the threat of an economic downturn had diminished. During testimony before U.S. lawmakers in Washington, he said there are ``significant downside risks to the outlook for growth.''

Fewer companies boosted wages, the survey also showed. A net 20 percent said salaries have increased, the lowest level since the end of 2003, and down from 31 percent in the group's previous survey in April.

Wages, Inflation

The Labor Department's report on consumer prices last week showed wages, adjusted for inflation, fell 2.4 percent in the 12 months ended in June. Employers have cut jobs each month in 2008, according to government figures.

Declines in hiring and the failure of wages to keep pace with inflation are among the reasons economist forecast consumer spending, the biggest part of the economy, will slow later this year.

Business investment plans were also soft last quarter after slumping in the first three months of the year, the NABE survey showed. On net, 27 percent of the firms said they would increase spending on new buildings and equipment over the next 12 months compared with 28 percent in the first quarter. At the end of 2007, that reading was 40 percent.

To contact the report on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net