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NABE Survey Shows Economic Pressures Still Exist

July 23, 2012

“The survey results suggest worsening economic conditions through increased flatness in sales and profit margins, less upward pressure on employment, weakening optimism concerning real GDP growth, and rising concerns about the impact of the European crisis, potential US government spending cuts in January, and the expiration of Bush-era tax cuts in December, although there are fewer inflationary pressures,” said Nayantara Hensel, Professor of Industry and Business at National Defense University about results from a survey by the National Association of Business Economics (NABE). “The rising sales and profit margins experienced earlier in the year may have been short-lived. Over half of the panelists in the current survey reported unchanged sales and unchanged profit margins.

Only 39% of panelists in the July survey reported rising sales and 29% reported rising profit margins, which is much lower than the 60% of panelists reporting rising sales in the April survey and the 40% reporting rising profit margins. Optimism on real GDP growth has weakened. Over half of the panelists forecast real GDP growth between 2.1% and 3% from the second quarter of 2012 to the second quarter of 2013 and 5% of panelists forecast that real GDP growth will exceed 3%. Nevertheless, 40% of the panelists forecast that GDP growth will be 2% or less and 11% suggest that it will be 1% or less in this survey.

In the prior survey, only 23% forecast that GDP growth would be 2% or less and only 4% forecast that it would be 1% or less, while 15% forecast that it could exceed 3%. The outlook on employment has weakened.

Although over two-thirds of the panelists report unchanged employment in this survey, only about one-fifth report rising employment. About 23% of panelists believe that employment will rise over the next six months, which is lower than the 39% of panelists in the prior survey. On a positive note, the panelists suggest reduced inflationary pressures in the economy: Over three-quarters of the panelists reported unchanged prices charged by their firms, while only 9% of panelists reported rising prices, which is lower than the 21% of panelists reporting rising prices in the April survey.

Almost two-thirds of the panelists reported unchanged materials prices and one-fifth reported rising materials costs. About one quarter of the panelists reporting rising wages, which is lower than the 44% of panelists who reported rising wages in the April survey. Moreover, almost three quarters of the panelists expect that the prices charged by their firm will not change over the next three months, and over half of the panelists do not expect primary non-labor input prices to change over the next three months. The survey suggests fewer capital spending increases and panelists continue to forecast stability in capital spending over the next 12 months. NABE panelists express significant concerns about the impact on their sales if Bush-era tax cuts expire in late December and the automatic government spending cuts take place in early January.

Indeed, 65% of the panelists expect sales to fall under this scenario, while 30% of the panelists expect that sales would stay the same.

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