The rising sales and profit margins experienced earlier in the year may have been short-lived, according to answers given on the July survey of the National Association for Business Economics. The survey, presenting the responses of 67 NABE members to questions presented to them last month, asked about business conditions and respondents’ near-term outlook.
“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 U.S. government spending cuts in January, and the expiration of Bush-era tax cuts in December, although there are fewer inflationary pressures,” said Dr. Nayantara Hensel, Professor of Industry and Business at National Defense University.
Over half of the panelists in the 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.
NABE panelists suggest that the European crisis has had a significant negative impact on their sales and is likely to continue to do so. About 47% of the panelists report that their sales have fallen due to the European crisis and about half of panelists expect the European crisis to lead to a decrease in their company’s sales over the next six months; this is more than double the 21% of panelists who held this view in the April survey.”
Highlights:
• The July survey results suggest that the increase in sales experienced earlier in the year may have been short-lived. Fewer panelists in the July survey (39%) reported rising sales than in the April survey, in which 60% of panelists reported rising sales. Moreover, the share of panelists in the recent survey reporting rising sales is also lower than the share reporting these results in the January 2012 survey, the October 2011 survey, and the July 2011 survey. A greater share of respondents—51%—reported unchanged sales, which is a much higher share of panelists than those reporting unchanged sales in the April 2012 survey (30%) and in the prior three surveys (36%-40%).
• Between 50% and 57% of panelists reported unchanged sales for their firms in the transportation, utilities, information, and communication (TUIC) sector, the services sector, and the goods-producing sector, while only 44% reported unchanged sales in the finance, insurance, and real estate (FIRE) sector. Between 27% and 38% of panelists in the services, TUIC, and goods-producing sectors reported rising sales, while 50% of FIRE panelists reported rising sales. In the April survey, however, significantly higher shares of panelists in the goods-producing, FIRE, and services sectors reported rising sales—83% reported rising sales in the goods producing sector, 69% reported rising sales in the FIRE sector, and 56% reported rising sales in the services sector in the April survey.
• The July survey results suggest that the increase in profit margins experienced earlier in the year may have been short-lived. About 29% of panelists in the July survey reported rising profit margins, which is significantly lower than the 40% of NABE panelists who reported rising profit margins in the April survey. The share of panelists in the July survey has greater similarities to the 27%-30% of panelists reporting rising profit margins in the July 2011, October 2011, and January 2012 surveys. The share of panelists reporting unchanged profits (59%) is similar to the 51%-58% of panelists reporting unchanged profit margins in the July 2011, October 2011, and January 2012 surveys and is higher than the 42% in the April 2012 survey. On a positive note, a lower share of panelists—13%—reported falling profit margins in the July survey relative to the share of panelists in prior surveys.
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