Dive Brief:

• Companies reported rising sales and investment during the fourth quarter but the largest percentage of firms since July 2020 expect profit margins to fall this quarter amid pandemic-induced shortages of labor and materials, according to a National Association for Business Economics (NABE) survey.
• "Conditions remained strong during the fourth quarter of 2021," NABE Vice President Julia Coronado said, noting that 65% of respondents reported increasing sales — the highest percentage in the survey’s 40-year history — and 45% saying they increased capital spending. Coronado is founder of MacroPolicy Perspectives LLC.
• At the same time, the proportion of companies that expect profit margins to decrease rose to 19% this month from 13% in October, NABE found in its Jan. 3 to Jan. 12 survey.

Dive Insight:

As the first month of 2022 winds down, CFOs confront headwinds to sustained profits, including rising costs largely stemming from the pandemic, which 36% of respondents believe poses the biggest risk to their business outlook, NABE said.

The producer price index for final demand, a measure of what suppliers charge, jumped 9.7% in 2021. It was the largest calendar-year increase since data were first calculated in 2010. NABE found that the cost of materials rose for 69% of companies — the second highest reading since 2008.

"In the next three months nobody really expects prices to fall," Jan Hogrefe, survey chair and chief economist at Boeing Commercial Airplanes, said Monday during a NABE webinar.

Meanwhile, private sector hourly wages in 2021 jumped 5.8% amid the tightest labor market in decades. A record 68% of companies said they raised pay during the fourth quarter, and 77% plan an increase this quarter, NABE said. The proportion of companies reporting a shortage of skilled labor rose to 57% compared with 47% in October.

The NABE findings align with other recent surveys.

Half of small businesses consider their biggest challenge to be difficulty finding and retaining employees, and 71% of companies now hiring say the labor shortage is undercutting profits, according to a Goldman Sachs survey of 1,466 small businesses from Jan. 10 until Jan. 13.

Forty-eight percent of small businesses reported raising compensation last month — a 48-year record — and 32% plan to raise pay this quarter, according to a National Federation of Independent Business (NFIB) survey.

"The labor shortage is holding back the small business economy as owners work to retain their current employees and attract employees for their open positions," NFIB Chief Economist Bill Dunkelberg said. "A record-high number of small business owners are raising compensation to help retain and attract new employees."

Although future profit growth may be tenuous for some firms, margins were healthy among Standard & Poor’s 500 companies during last quarter, according to FactSet estimates.

S&P 500 companies will probably report earnings growth of nearly 30% for the three months from October through December, the fourth consecutive quarter in which earnings rose 25% or more, according to John Butters, senior earnings analyst at FactSet.