WASHINGTON -- The economy will continue growing strongly next year, but at the cost of higher wholesale inflation, a survey of purchasing executives released yesterday said.
The growth will be fueled by growing business revenues and investment, the survey said.
"Growth in the economy will continue to strengthen in 1995," said the National Association of Purchasing Management, summarizing the results of its semiannual survey of forecasts from 300 executives in 20 manufacturing industries.
Also, "the outlook for Christmas retail sales [this year] is the brightest in over 10 years, according to purchasing executives from all regions of the country," the group said.
Business revenues are projected to rise by 8.5% next year, according to the survey. "Purchasing executives continue to be optimistic about the outlook for 1995," said Ralph Kaufman, chairman of the group's survey committee.
But respondents foresee higher wholesale prices. "Purchasers say the overall prices they paid in 1994 increased by 3.1% since the end of 1993 and they expect a further increase of 4.1% for all of 1995," the group added. Meanwhile, labor costs are projected to rise by 3.2% next year.
In another development that does not bode well for inflation, the executives said their firms are currently operating at a whopping 89.5% of capacity, the highest rate since the group began asking about capacity five years ago.
Economists generally say inflation tends to heat up when capacity utilization in the economy exceeds 85%. Overall capacity use stood at 84.6% in October, according to the Federal Reserve's latest estimate.
Not surprisingly, respondents predicted that their firms will continue to increase their productive capacity next year. This will be accomplished by continued vigorous capital investment, modest new hiring, and continued reduction in inventory-to-stock ratios, according to the survey.
Respondents said their firms will spend 7.5% more on new plant and equipment next year than they did this year, the survey said.
Nonetheless, the executives are most concerned about an overheating economy. "The purchasers' major economic concerns are inflation, rising interest rates, and shortages of materials," the group said.
The executives also expect continued growth next year in the international sector. They anticipate gains in both their firms' imports and exports, with exports rising at a faster pace, the group said.
The survey respondents also noted they expect the dollar to strengthen next year against other major currencies. However, they predicted the same thing at the beginning of this year and only recently has the dollar risen against other major currencies.