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June 12, 2006

The business cost squeeze

Although many signs point to a growing economy, some business owners have a worried look on their faces. N.C. State University's Mike Walden explains why.

"Many of them … are right now caught in a squeeze between what they are getting back from their workers in terms of productivity and what they are paying to workers," explains Dr. Walden, a professor of agricultural and resource economics. "Now productivity is still going up, worker productivity, but it is going up at a slower rate.

"On the other hand, worker costs have been accelerating. And so when you get these two sort of getting together -- banging together -- that puts pressure on businesses, particularly on business profits.

"Now, one option … for many businesses is to simply say, ‘Well we will raise our prices to kind of tough it out.' But many businesses have learned a lesson that with our very, very competitive economy, many of them don’t have the kind of pricing power that they had in the past.

"So this is why you may see a lot of business owners with rather glum faces recently."

Posted by deeshore at June 12, 2006 08:02 AM