Businesses Planning to Boost Prices

U.S. businesses are finding it easier to pass along higher costs to consumers and plan to keep pushing prices up in the coming months, according to a survey of businesses released Monday that also showed steady economic growth despite recent hurricanes.

“Our survey respondents are telling us they have been -- and will be -- raising prices more aggressively than in the past,” Eaton Corp. Chief Economist Jim Meil said, referring to a survey by the National Assn. for Business Economics.

The survey of 101 businesses found 40% had raised prices in the third quarter, compared with only 2% that had cut them. The resulting net rising index of 38% -- the difference between the two -- was the second-highest in the survey’s 24-year history.

In addition, 46% of the firms said they expected to push prices up over the next three months, in contrast to only 4% that said they were likely to lower them.

The current survey and one conducted after the close of the second quarter also showed businesses were having an easier time of making price increases stick than around the turn of the year.

Despite powerful blows from hurricanes Katrina and Rita, the survey found that U.S. economic growth remained fairly stable, with a net rising index of demand growth moving up a couple of notches to 45% from the last survey in July.

U.S. gross domestic product expanded at a 3.3% annual rate in the second quarter. Economists polled by Reuters expect that it expanded at a 3.5% pace in the third quarter.

In a special question on the effect of the two hurricanes, a majority of firms said there was no effect on sales or margins. But of those that said there had been an effect on margins, those expecting the pressure to continue over the next 12 months exceeded those that saw a more positive outcome.

The association survey found that industry profit margins had widened in the July-September period and called the 37% share reporting rising margins “unusually large.”

Though employment conditions remained healthy over the last quarter, the group said the outlook for new hiring over the coming six months weakened significantly.

“The notable soft spot was in hiring plans,” Meil said.

A net positive jobs reading of 19 in October was a shade below July and April readings of 20 but “another high reading by historical standards,” the group said. All sectors added jobs.

However, the percentage of firms expected to add staff in the next six months dropped to 29% from 42% in July. The number planning to cut jobs by not filling vacant positions rose to 11% from 5%.

Capital spending remained strong, but the net number of businesses reporting rising outlays over those recording a decline fell slightly to 31 from 34 in July.

Some 48% of firms expect capital spending to increase over the next 12 months and only 10% see a decline, the report showed.