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Tue, Jan 25, 2005 - Page 12 News List

US firms foresee rise in spending this year: survey

BLOOMBERG

US companies expect to increase spending as the economy expands 3 percent to 4 percent in the first six months of the year, according to a survey by the National Association for Business Economics (NABE).

More than half of respondents, 51 percent, forecast growth within that range and 29 percent said it may rise 2 percent to 3 percent. Sixty percent of those surveyed expect to spend more this year, compared with 55 percent who projected an increase in October, the last time the survey was taken.

At 60 percent, most executives surveyed have the same outlook for growth they did three months ago. Economists surveyed by Bloomberg expect gross domestic product to rise 3.6 percent this year after increasing 4.4 percent last year. The projected pace is faster than the average 3.1 percent from 1973 to 2003.

"Our panelists see continued solid growth over the first half of the year," said Kevin Kliesen, an economist at the Federal Reserve Bank of St. Louis, and one of the conductors of the survey.

"The fourth quarter was one of faster growth for wages and salaries, employment, profits and capital spending, while inflation and growth of material input costs edged lower," Kliesen said.

Twenty-one percent of respondents said they are "somewhat more optimistic" about growth for the first six months of this year, up from 16 percent. In October, 71 percent said the economy would grow between 2 percent and 4 percent in the last half of 2004.

A regional survey by the Federal Reserve released last week showed the US economy expanded from late November through early January, with most of the 12 Fed districts reporting "modest" inflation pressures and increased consumer spending. The Federal Open Market Committee will use the survey, known as the "beige book," to help decide rate policy at its next meeting on Feb. 1 and Feb. 2.

At the meeting, Fed policy makers are expected to raise the benchmark overnight bank lending rate by 25 basis points to 2.5 percent, the median forecast in a Bloomberg News survey.

Companies surveyed by the NABE said costs for the materials they use increased at a slower pace in the fourth quarter than the third. Sixty-three percent said costs were rising, down from 70 percent in the third quarter. In the same period last year, 39 percent had reported rising costs.

Forty-six percent of survey respondents expect input prices to hold steady in the next three months and the same amount expect them rising less than 5 percent. That compares with 34 percent and 54 percent, respectively, who said the same in October.

US wholesale prices fell 0.7 percent in December, the biggest decline since April 2003, as energy costs declined, the Labor Department said on Jan. 14.

Crude oil prices are down 12 percent since closing at a record US$55.17 a barrel on Oct. 26. Crude rose US$1.22, or 2.6 percent, to US$48.53 Jan. 21 on the New York Mercantile Exchange.

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