MNI: US NABE Survey: Wage Inflation on Horizon

By Holly Stokes

     WASHINGTON (MNI) - Business participants are overall optimistic about the

first quarter of 2018 and believe that wage inflation may be on the horizon,

suggests the January 2018 NABE Business Conditions Survey released Monday.

     The survey found that the Net Rising Index (NRI) for wages and salaries

rose to 48 - its highest level since 2000 and the third highest level since the

survey start in 1982. Respondents were also optimistic for future wage

increases, with 49% expecting their firms to increase wages and bonuses in 2018.

These wage gains will likely be broad based, as the NRI for expected wage gains

are strong across all industry groups. 

     Expectations for wage gains may be partially driven by current worker

shortages, as raising pay alongside investing in automation and internal

training are the top reported ways respondents have been dealing with hiring

difficulties. The share of respondents reporting shortages of both skilled and

unskilled labor have increased, with reports of difficulties hiring skilled

labor more widespread at 39%, the highest share since July 2008. 

     Labor shortages may be exacerbated by increased hiring plans. Only 18% of

respondents, down from 32% in October, report their firms have no open

positions. Respondents also indicated their firms have plans to increase hiring

in 2018 as a whole, with 34% expecting their firms to increase as opposed to the

12% expecting their firms to reduce hiring. 

--SALES AND PROFIT UP

     Nearly half, 47%, of panelists reported that sales rose since October. The

NRI for sales was positive for all industries, but the transportation,

utilities, information, and communications sector had the lowest with 27%

actually report falling sales. Additionally, while 51% of firms expect increased

sales in the next 3 months, this is actually the lowest share since the July

2016 survey and the NRI is the lowest since April 2016. 

     However, panelists were more optimistic in regards to profit margins - with

35% reporting rising profits, driving the NRI to its highest value since January

2015. The NRI for expected profit margins in the next 3 months also increased,

returning to early 2017 levels. 

     An increase in profit margins may be partially due to a larger percentage

of respondents in each of the four sectors reporting prices charged increasing

at their firms. However, this may reflect pass-through of higher input costs -

with the NRI for materials cost at its highest since 2011, and expectations for

cost increases in the next 3 months also higher.

--OPTIMISM FOR 2018

     Panelists were optimistic for 2018 as a whole, with 63% expecting higher

sales and 37% expecting higher capital spending. Additionally, 88% of panelists

expect GDP growth to surpass 2% in the coming four quarters. However, there were

certain areas of concern including expectations for rising health care costs and

NAFTA negotiations' potential changes to rules of origin, new technology

considerations, and dispute resolution mechanisms. 

--MNI Washington Bureau; +1 202-371-2121; email: holly.stokes@marketnews.com

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