FOCUS-U.S. corporate leaders see little pricing power
By Caren Bohan
BOCA RATON, Fla., Oct 27 (Reuters) - Leaders of large U.S. corporations see little ability to raise prices despite a buoyant economy, and many believe growth in electronic commerce will help to keep inflation at bay in coming years, the Business Council said on Wednesday.
The Business Council, representing chief executive officers from an array of major companies such as AT&T (NYSE:T - news), Johnson & Johnson (NYSE:JNJ - news) and Citigroup (NYSE:C - news), said a poll of its members showed that the CEOs were upbeat about the U.S. economy, now in its ninth year of expansion. They described the market for available workers as tight and possibly getting tighter.
Corporate leaders saw little sign of an economic slowdown, even though many of their staff economists expected one.
``We seem to be complacent,' said Citigroup Chairman and Co-CEO Sandy Weill, who at a news conference summarized the results of a survey of council members. ``Most of the members seem to think that the economy (in 2000) is not going to be much different from 1999 or 1998.'
The council did not release specific percentage figures for the survey but a report on the members' views said they characterized business activity right now as either stronger than six months ago or little changed.
The economic report was prepared for the council's semiannual meeting here.
At a time when rebounding commodity prices and the tight labor market have left Wall Street investors jittery about inflation, Business Council members saw little reason to fret.
``Nobody feels they have any pricing power,' Weill said, adding that because of intense competition, companies were being forced to absorb the higher commodity prices rather than pass them along to consumers.
The council said that in the poll, members reported pricing power was either weaker than six months ago or little changed ``but still soft.'
Business leaders across economic sectors who appeared at the news conference cited examples of difficulty making any price rises stick.
Ralph Larsen, chairman of health-care giant Johnson & Johnson, said while business has been brisk overall, the company was actually seeing deflation for many old products. As a result, the key to profitability has been constantly develop new products and to focus on bolstering productivity.
Electronic commerce was likely to reinforce the benign price trend, council members said. ``Council members expect e-commerce to raise productivity and decrease costs within their own firms. About half expect e-commerce to lower their own firms' pricing power,' the economic report said.
Concerning business costs, the group said health-care costs were picking up, with members projecting an average rise of 8 percent in 2000.
Executives said the tight job market has prompted them to boost salaries to retain workers in some cases and to offer benefits such as stock options and flexible work schedules. They said the flexible schedules and other benefits had helped to hold the line on wage costs, which otherwise might have accelerated faster given the strength of the labor market.
The Federal Reserve, which has raised interest rates twice this year already, is keeping a close eye on the labor market for signs of inflationary pressures.
Many investors believe the Fed could be poised to lift rates for a third time, possibly at its next meeting on Nov. 16. Business Council members will get to hear for themselves Fed Chairman Alan Greenspan's views about ``Technology and the Economy' when he delivers a speech here on Thursday evening.
He may or may not decide to drop some hints about where he is leaning on interest rates. The U.S. central bank chief's remarks are scheduled for 7:30 p.m. (2330 GMT).
For his part, Weill said the low inflation argued against a near-term rate rise. ``As of right now, I would say the odds are little bit in favor the fact that there won't be any rate rise through the end of the year,' he predicted. |
