Outlook Upbeat Despite Costs Pressuring Businesses In 1Q

Businesses felt the pressure from rising materials costs and labor over the last three months, according to a quarterly survey from the National Association of Business Economics.

In an AP story this morning, it was reported that 31 percent of businesses in the survey reported higher material costs, more than double the 15 percent that saw costs rise the during the previous quarter survey. Additionally, 35 percent of companies also reported rising wages and salaries at their businesses, up from 23 percent in January.

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

Looking at the upcoming quarter, 41 percent of businesses said they expect costs to increase up to 5 percent. Whether they'll be able to pass that on to customers is uncertain, but 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.

Regardless of these pressures, businesses appear to be more upbeat about the broader economy and the direction it is headed. The survey shows that 61 percent of companies will most likely increase capital spending in the next year, up from 52 percent.

According to reporting from USA TODAY, companies with big spending plans include Whirlpool. It’s investing $40 million to double the size of a factory in Greenville, Ohio where its KitchenAid mixers are made. The expansion is expected to add 400 jobs by 2018.

This is good news for the overall economy because business investment in equipment and buildings drives economic growth as companies hire workers to meet demand. Capital spending that had surged early in the economic recovery slowed in 2013 because manufacturers had lots of spare capacity.

In March, used production capacity reached a post-recession high of 79.2 percent, as reported by the Federal Reserve. UBS economist Maury Harris says that 80 percent is the “tipping point” at which equipment purchases surge.

What is your business outlook for 2014? Are you optimistic that things are moving up? Have things gotten worse in your industry? Or are you remaining cautious and prefer to wait and see how the year goes? Leave your comments below. 

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