By Steven K. Beckner
WASHINGTON (MNI) – Federal Reserve policymakers have been presuming
that the recent upsurge in consumer prices will prove “temporary” and
that inflation will be “subdued” in the longer run, but a survey of
business economists released Monday finds mounting signs of wage-price
pressures along with greater optimism about the economic outlook.
The National Association for Business Economics announced that a
larger share of the 55 member economists surveyed are reporting rising
prices and rising wages.
Nevertheless, the NABE members continue to expect “price stability”
to be maintained.
The survey also found greater optimism about economic growth,
anchored by higher sales and profits. But while employment is expected
to rise, business investment is not.
The Labor Department reported last week that the consumer price
index rose 0.3% last month, while the core CPI, excluding food and
energy, rose 0.2%. The annualized rates of 3.6% and 2.4% respectively
are well above the Fed’s 2% target.
Nevertheless, Fed Vice Chairman Janet Yellen said recently that
“the substantial slack in the labor market has restrained inflation by
holding down labor costs” and added that “longer-term inflation
expectations have been remarkably stable.”
Echoing the Federal Open Market Committee’s March 13 statement,
Yellen predicted that, after a “temporary” rise, inflation “will run at
or below” the Fed’s 2% target and concluded that “a highly accommodative
policy stance (is) appropriate in present circumstances.”
New York Fed President William Dudley, vice chairman of the Fed’s
policymaking FOMC, said inflation has likely “peaked and we expect it to
begin to decline later this year.”
However, a day before the FOMC is set to convene two days of
meetings, the NABE’s findings seem a bit less comforting.
Dr. Nayantara Hensel, Professor of Industry and Business at
National Defense University, said on behalf of the NABE that the survey
found “some indications of rising price pressures in wages.”
Evidence of greater price pressures was not dramatic. The NABE said
that the portion of firms reporting rising prices rose from 18% in its
January survey to 21% in the April survey. At the same time, though, the
share of firms reporting falling prices rose from 3% to 12%. Those
reporting “unchanged prices” rose from 67% to 78%.
The NABE said “rising prices were driven by the goods-producing
sector (55% of panelists),” while unchanged prices were driven by the
transportation, utilities, information and communication (TUIC) and the
finance, insurance and real estate (FIRE) sectors (88% and 89%
respectively). Falling prices were driven by the services sector and the
TUIC sector.
Over half of NABE panelists continued to report unchanged materials
prices, while 37% reported rising materials costs, and only 7% of
panelists report falling materials costs.
But the NABE said its survey “suggests the possibility of moderate
upward pressure on primary, non-labor input prices over the next three
months. Nearly half (47%) expected an increase of 5% or less — up from
36% in January.
On the labor compensation front, Hensel observed that the survey
results “suggest a greater trend toward rising wages than the prior
surveys in that 44% of the panelists reported that wages and salaries
are rising, while only 26% of panelists reported rising wages in the
January survey.”
Or, as the NABE report put it, “the April 2012 survey finds
stronger evidence of rising wages than the prior surveys. A
significantly higher share of panelists (44%) reported that wages and
salaries are rising in the April 2012 survey, relative to the previous
four surveys, and a significantly lower share reported that wages and
salaries are unchanged (48%). In the prior survey, only 26% of panelists
reported that wages and salaries were rising and 71% reported that they
were unchanged.”
Despite the larger share of firms reporting both price and wage
pressures, the report said “expectations of price stability remain
strong and consistent. About two-thirds of panelists do not expect
prices charged by their firms to change over the next three months, and
25% expect them to rise by 5% or less.”
In other notable survey findings, the NABE reported that “a much
higher share of panelists reported rising sales in this survey (60%)
relative to the share that reported rising sales in the January survey
(41%).”
What’s more “rising profit margins among panelists in this survey
reinforce the likelihood of improved conditions in the economy,” the
NABE said, noting that “a higher share of panelists reported rising
profit margins in the April survey (40%) than in the prior surveys….”
Almost two-thirds of panelists in the April survey forecast that
real GDP will grow between 2.1% and 3% from the fourth quarter of 2011
to the fourth quarter of 2012.
Consistent with the greater optimism about economic growth, the
NABE said its members have become “more optimistic outlook regarding
employment over the next six months than the prior survey,” with 39%
believing employment will rise over the next six months, compared to
just 27% in January.
On the other hand, business investment seems to be heading in the
opposite direction, judging from the NABE survey’s finding that “a
smaller share of panelists (29%) reported rising capital spending in the
April 2012 survey than in the previous survey, with a higher percentage
(65%) reporting unchanged capital spending.”
** MNI Washington Bureau: 202-371-2121 **
[TOPICS: M$U$$$,MAUDS$,M$$BR$,MMUFE$]
