WASHINGTON -- Industrial purchasing managers said yesterday that they expect to enjoy a buoyant year of economic growth while price pressures and labor costs remain muted.
The semiannual economics forecast of the National Association of Purchasing Management says members expect revenues to rise 7% this year, which is more optimistic than the 4.7% gain expected during the last survey in December. It is also the largest increase in any semiannual forecast since the group began the survey in December 1989.
The purchasing managers said that improving business conditions have lifted their overall operating rate to 87.9% of normal capacity. That is up from the 83.7% rate they reported at the end of 1993 and the highest reading ever recorded by the group.
Economists are paying close attention to factory operating rates because in the past the rates have signaled an increase in inflation when they got high. The Federal Reserve reported that U.S. manufacturers, mines, and utilities in March operated at 83.6% of capacity, the highest level since June 1989.
However, companies are responding to tighter capacity by stepping up investment to expand production lines, the purchasing managers said. On average, they forecast a whopping 10.9% rise in capital spending over 1993, considerably higher than the 2.3% increase forecast in December.
At least in the short run, the prospect of expanding capacity seemed to be easing worries that plants will be forced to pay higher prices for materials. The purchasing managers said that they expect to see prices rise only 1.5% this year.
They were also optimistic on the outlook for labor and benefit costs, projecting that total compensation for workers will rise only 2.7% in 1994. That is below the 3.2% forecast in December and the smallest change in a forecast since the group's survey was established in 1989.
Compensation costs typically account for the biggest share of costs for a business. Last week, the Labor Department reported that the employment cost index in March rose 3.2% compared to a year earlier, the smallest annual increase in the series since the government began keeping records in 1982.
However, the purchasing managers said they had not changed their outlook much for employment this year. Of those surveyed, 42% said they planned further reductions in staff, while only 11% said they planned to step up hiring, and 47% said they did not plan any changes.
On the prospects for the U.S. dollar, which has weakened this year and prompted intervention in foreign exchange markets last week by U.S. authorities, purchasing managers who import goods were optimistic. Most said they expect the dollar to strengthen for the balance of the year against the currencies of major U.S. trading partners.
Separately yesterday, the Commerce Department said its index of leading economic indicators for March jumped 0.7%, suggesting that U.S. output will continue to expand at a healthy pace in the months ahead. Nine of 11 indicators in the series pointed to growth, while two were negative.
A rebound in the average workweek series from a weather-related drop in February was the biggest single factor behind the rise in the March index. Commerce Secretary Ronald Brown said the report, along with other figures, indicated that the expansion in the economy "will continue in coming quarters."
