U.S. economy stronger, but rising costs weigh

Tue Jul 6, 2004
By Laura MacInnis

WASHINGTON, July 6 (Reuters) - U.S. economic growth is vigorous and well-supported by strong industry demand that is creating more jobs, but potential inflation is a threat, a survey of American businesses released on Wednesday suggested.

The National Association of Business Economics said its 104 surveyed members had a "stable or more upbeat" economic outlook, seeing real output rising 4 percent in the second half of 2004, roughly on par with the first half of the year.

Participants in the survey, which took place between June 8 and June 23, cited a range of rising business costs as their top concerns. In a similar NABE study released in March, unemployment and the deficit topped economic worries.

"By almost any measure -- output, employment, profit margins, capital spending -- this economy is strong," NABE President Duncan Meldrum said of the latest poll.

"Although upward pressure on product prices eased a bit from last month's survey, the greatest threat going forward still appears to be higher materials costs and prices."

One-third of respondents said their companies attempted price increases over the past three months, of which 94 percent were fully or partially realized.

More than one-third said they expected prices to rise in the third quarter, with the largest increases in the goods and finance sectors.

About 41 percent of those polled said they plan to increase hiring in the third quarter, compared to 34 percent who expected to hire more people last quarter.

Total industry demand also rose, led by strength in the transportation, utilities and communications sectors.

The group had a divided outlook on the effect of monetary policy tightening by the Federal Reserve next year.

Nearly half of respondents -- 47 percent -- said higher borrowing costs would dampen output growth by two percent or less, and 19 percent anticipated more severe harm.

Another 15 percent, mostly from the financial sector, said higher rates might bring about accelerated growth next year, possibly in anticipation of even higher rates in 2006.

"Perhaps higher rates are seen by some to trigger some preemptive acceleration of business into 2005," NABE said.





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