NABE Industry Survey October 2012: New NABE Survey Shows Continued Concerns about Economic Conditions

The October 2012 NABE Industry Survey report presents the responses of 67 NABE members to a survey conducted between September 28-October 9, 2012, on business conditions in their firm or industry, and reflects third-quarter 2012 results and the near-term outlook.

COMMENTS: “The survey suggests continued flatness in sales, profit margins, and employment, as well as expectations of moderately slow real GDP growth. Inflationary pressures are largely flat, but are exhibiting some increase relative to the last survey. The negative impact of the European crisis has lessened, although panelists continue to be concerned about its future impact, as well as the impact of potential U.S. government spending cuts in January, and the expiration of Bush-era tax cuts in December,” said Dr. Nayantara Hensel, Chair of the NABE Industry Survey and Professor of Industry and Business at National Defense University. “About 45% of panelists report unchanged sales and 58% of panelists report unchanged profit margins. Although inflationary pressures and inflationary expectations largely continue to remain flat, there is an increased potential for rising inflationary pressures. About 20% of the panelists reported that the prices charged by their firms over the past three months have risen, which is more than twice the share of panelists reporting rising prices in the July survey. About 23% of panelists suggest that the prices charged by their firms will increase over the next three months, which is an increase from the 12% of panelists who held this view in the prior survey. Almost one-third of the panelists reported rising materials costs, which is higher than the 22% of panelists reporting rising materials costs in the July survey. About 43% of panelists expect primary, non-labor input prices to increase over the next three months, which is higher than the 26% of panelists who held this view in the prior survey. Nevertheless, inflationary pressures and inflationary expectations remain generally unchanged in that 72% of panelists report unchanged prices over the past three months, two-thirds of the panelists expect that the prices charged by their company will not change over the next three months, about 60% of the panelists report that the materials costs of their firms over the past three months have been unchanged, and about 45% of panelists expect that primary non-labor input prices will not change over the next three months. The labor market exhibits continued stability in that over four-fifths of the panelists report that their wages and salaries have been unchanged, over two-thirds of the panelists reported unchanged employment at their firms, and over half of the panelists suggest that their employment is likely to remain unchanged over the next six months. On an optimistic note, a higher share of panelists reported rising capital expenditures in this survey (31%) relative to the prior survey (20%), although almost twothirds of the panelists reported unchanged capital spending. Almost two-thirds of the panelists forecast moderately slow real GDP growth of between 1.1% and 2% from the third quarter of 2012 to the third quarter of 2013, while over one-third of the panelists forecast real GDP growth exceeding 2%. The 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. However, these concerns have not worsened since the last survey, and remain stable. About 63% of the panelists expect sales to fall under this scenario. Almost two-thirds of the panelists do not expect the third round of quantitative easing to indirectly affect their company’s sales over the next 6 months. The impact of the European crisis on the sales of the panelists’ firms has become less negative since the last survey, possibly due to greater stability in the trajectory of the European crisis and possibly due to adjustments in corporate strategy to mitigate risk. About 34% of the panelists indicate that the European crisis has directly led to a decrease in their company’s sales, which is less than the 47% who indicated a decline in their sales in the prior survey. About 60% indicate that their sales have stayed the same. The expectations of panelists regarding the impact of the European crisis over the next six months have also improved.”

HIghlights

• The share of panelists in the October survey reporting rising sales (39%) is unchanged from the July survey, although a slightly higher share of panelists reported falling sales relative to the last survey (16% in the October survey relative to 11% in the July survey), and a lower share of panelists reported unchanged sales (45% vs. 51%).
• Only 6% of the panelists in the finance, insurance, and real estate (FIRE) sector reported falling sales; indeed, 63% of the panelists in that sector reported rising sales, indicating growth in this sector. Almost one quarter of the panelists in the transportation, utilities, communication, and information (TUIC) sector reported falling sales, while 19% of the panelists in the goods-producing sector and 17% of the panelists in the services sector reported falling sales. About 38%-39% of panelists in the goods-producing sector and the services sector reported rising sales over the past three months. Although a similar share in the goods-producing sector and the services sector reported rising sales in the July survey as in the October survey, a higher share of FIRE panelists reported rising sales (50% in the July survey vs. 63% in the October survey) and a lower share in the TUIC sector reported rising sales (27% in the July survey vs. 18% in the October survey).
• The greatest share of the panelists—58%—reported unchanged profit margins over the past three months, while 27% reported rising profit margins, and 15% reported falling profit margins. The profit margin results in this survey are similar to the findings in the previous survey in July, which suggests continued stability in the profit margins of the panelists’ companies.
• In the four sectors, the highest share of panelists—between 44% and 77%—reported unchanged profit margins over the past three months. About 38%-39% of respondents in the services and goods-producing sectors reported rising profit margins. The results on profit margins in this survey are similar to the results in the July survey. The share of panelists reporting rising profit margins has risen in the services sector from 27% in the July survey to 39% in the October survey, although the share of panelists reporting rising profit margins has fallen since the last survey in the goods-producing sector (43% in July vs. 38% in October), the TUIC sector (17% in July vs. 8% in October), and the FIRE sector (27% in July vs. 20% in October).
• About 20% of the panelists reported that the prices charged by their firms over the past three months have risen, which is an increase over the 9% of panelists reporting rising prices in the July survey. This suggests the potential for slightly higher inflationary pressures in the economy relative to the prior survey. Nevertheless, the share of panelists reporting rising prices is similar to the share reporting rising prices in the April 2012 survey, the January 2012 survey, and the October 2011 survey. Relative to the prior survey, a slightly lower share of panelists reported unchanged prices (72% in the October survey vs. 79% in the July survey) and a slightly lower share reported falling prices (8% in the October survey vs. 12% in the July survey). Between 67% and 79% of the panelists within each of the four sectors reported unchanged prices charged by their firms, while between 14% and 25% reported rising prices.
• Inflationary expectations of NABE panelists regarding the prices that their firms will charge over the next three months remain muted in that two-thirds of the panelists expect that the prices charged by their company will not change over the next three months, although there is some possibility of greater inflationary pressures in that 23% of the panelists suggest that prices will increase. In the prior survey, only 12% of the panelists suggested that prices would rise and 74% suggested that prices would remain unchanged.
• About 60% of the panelists report that the materials costs of the their firms over the past three months have been unchanged, which is slightly lower than the share of panelists in the July survey reporting unchanged prices (65%). Almost one-third of the panelists reported rising materials costs, which is higher than the 22% of panelists reporting rising materials costs in the July survey.
• Although between 63% and 70% of panelists in the goods-producing, FIRE, and services sectors are reporting unchanged materials prices, only 36% of the panelists in the TUIC sector report unchanged materials prices. Although 55% of panelists in the TUIC sector report rising materials prices, between 19% and 30% of panelists in the other three sectors report rising materials prices.
• The inflationary expectations of almost half of the panelists regarding primary non-labor input prices over the next three months continue to exhibit flatness, although there is a greater expectation that primary non-labor input prices will increase. About 45% of the panelists in the current survey expect that primary non-labor input prices will not change over the next three months while 58% of the panelists held that view in the July survey. A higher share of panelists expect primary, non-labor input prices to increase over the next three months (43%) relative to the share of panelists who held this view in the prior survey (26%).
• Over four-fifths of the panelists report that their wages and salaries have been unchanged, and only 17% report rising wages and salaries, while none of the panelists report falling wages and salaries. The share of panelists reporting rising wages and salaries (17%) is lower than the share of panelists holding this view in the prior surveys in July 2012 (25%), April 2012 (44%), January 2012 (26%), October 2011 (19%), and July 2011 (28%). This suggests that fewer inflationary pressures are driven by rising wages and salaries. A greater share of panelists reported unchanged wages and salaries over the past three months in the October survey (83%) relative to earlier surveys, which suggests greater stability in wages and salaries.
• Over 60% of the panelists report no input shortages in the current survey, which is lower than the share of panelists who reported no shortages in the last survey (75%). The shortage of skilled labor continues to be the most important area of shortages.
• About 18% of panelists reported rising employment, which is slightly lower than the share of panelists (22%) reporting rising employment in the July 2012 survey. As in the prior survey, over two-thirds of the panelists reported unchanged employment, which suggests continued stability. Only 10% of the panelists reported falling employment at their firm, which is similar to the results from the July survey.The majority of respondents in each of the sectors—between 63% and 89%—reported that employment over the past three months has been unchanged. Between 18% and 31% of panelists in the goods-producing sector, the TUIC sector, and the FIRE sector reported rising employment, although only 6% of respondents in the services sector reported rising employment. The highest shares of panelists reporting falling employment in their firms were in the TUIC sector (18%) and the goods-producing sector (13%). The FIRE sector had the highest share of panelists reporting rising employment (31%) and the lowest share of panelists reporting falling employment (6%).
• The panelists continue their stable outlook concerning employment over the next six months. About 55% of the panelists suggest that their employment is likely to remain unchanged, while 28% suggest that their firm’s employment is likely to increase. About 14% of the panelists suggest that the firm’s employment will decrease through attrition and 3% suggest that it will decrease through significant layoffs.
• Between 50% and 69% of the panelists in the goods-producing sector, the TUIC sector, and the services sector suggest that their firm’s employment is likely to remain unchanged over the next six months, while only 31% of panelists in the FIRE sector hold this view. About 56% of the panelists in the FIRE sector suggest that employment could increase over the next six months, whereas only 31% of the panelists in the goodsproducing sector hold this view, 19% of the panelists in the services sector hold this view, and only 6% of the panelists in the TUIC sector hold this view. This suggests that although the panelists in the goods-producing sector, the TUIC sector, and the services sector suggest stability in employment over the next six months, the FIRE sector panelists suggest growth.
• A higher share of panelists reported rising capital expenditures in this survey (31%) relative to the prior survey (20%), while a smaller share of panelists (8%) reported falling capital expenditures than in the prior survey (15%). Almost two-thirds of the panelists (61%) reported unchanged capital spending over the past three months.
• About two-thirds of the panelists in the goods-producing sector reported rising capital expenditures, which is a significantly higher share than the 38% which reported this in the July survey. Between 57% and 76% of the panelists in the TUIC sector, the FIRE sector, and the services sector reported unchanged capital spending, which is similar to the results in the July survey.
• About 36% of panelists predict that capital spending at their firm will stay about the same over the next 12 months, 52% expect that capital spending will increase, and about 12% expect capital spending to decline over the next year. Relative to the prior survey in July, a lower share expects that capital spending will remain the same over the next twelve months (36% in October vs. 49% in July) and a higher share expects moderate increases in capital spending of 10% or less (39% in October vs. 29% in July). In each of the four sectors, at least 80% of the panelists suggest that capital spending will increase or stay the same over the next 12 months.
• Only 10% of the panelists expect spending on computers and communications equipment to decline over the next 12 months. About 39% expect it to stay the same and 51% expect that it will increase, which is similar to the prior survey. Across the sectors, the share of panelists expecting spending on computers and communications equipment to increase ranged from 38% (the TUIC sector) to 60% (the FIRE sector).
• About 64% of panelists across sectors believe that their firm’s spending on structures will stay about the same over the next 12 months, and 27% of panelists believe that it will increase. Only 10% of panelists in the current survey believe that capital spending on structures may fall over the next 12 months, which is lower than the 19% of panelists who held this view in the prior survey.
• One-third of the panelists with foreign operations reported that their company’s sales from foreignbased operations have increased over the past three months, 45% report unchanged sales, and 21% report falling sales, which is similar to the results from the prior survey. About 60% of panelists in the FIRE sector and 75% of panelists in the services sectors reported rising sales from foreign-based operations over the past three months. The goods-producing sector had the greatest share of panelists reporting falling sales (46%). 
• In the October survey, about 62% of panelists forecast that real GDP is likely to grow from the third quarter of 2012 to the third quarter of 2013 at a rate between 1.1% and 2.0%, suggesting moderately slow growth. About 31% of the panelists forecast real GDP growth between 2.1% and 3% and only 5% of the panelists forecast that real GDP growth will exceed 3%.
• Although the various prior surveys asked panelists to forecast over different one-year time periods, the panelists’ one-year horizon has become somewhat less optimistic than in the prior survey. While 62% of the panelists in this survey forecast growth between 1.1% and 2.0%, only 29% of panelists held this view in the July survey. Similarly, 36% of the panelists in the October survey forecast that that real GDP growth will exceed 2% while 61% held this view in the prior survey. On a positive note, however, a smaller share of panelists suggest that real GDP growth will be 1% or below over the next year (3% in the October survey vs. 11% in the July survey) and no panelists forecast negative GDP growth.
• The 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. However, these concerns have not worsened since the last survey, and remain stable. About 63% of the panelists expect sales to fall under this scenario. This view is held by 76% of the panelists in the goods-producing sector, 67% of the panelists in the TUIC sector, 54% of the panelists in the FIRE sector, and 57% of panelists in the services sector. • Over half of the panelists expect that the European crisis will indirectly affect their company’s sales, which is down from the two-thirds of panelists that held this view in the prior survey.
• About 34% of the panelists indicate that the European crisis has directly led to a decrease in their company’s sales year-to-date in 2012, which, on an optimistic note, is less than the 47% who indicated a decline in their sales in the prior survey. About 60% indicate that their sales have stayed the same, which is a higher share of panelists than the 51% who indicated this in the prior survey.
• The FIRE sector and the services sector are the two sectors in which the greatest share of panelists (86% and 83%, respectively) indicate that the European crisis has not affected their firm’s sales. The goodsproducing sector and the TUIC sector are the sectors in which the greatest share of panelists (75% and 42%, respectively) have indicated that their sales have fallen. The FIRE and services sector show improvement relative to the prior survey due to a higher share of panelists reporting that sales have stayed about the same and a lower portion reporting that sales have fallen, while the goods-producing sector and the TUIC sector report results which are basically similar to the prior survey.
• The survey results suggest less concern regarding the impact of the European crisis on sales over the next six months. In the current survey, about 37% of panelists expect that the European crisis will lead to a decrease in their company’s sales over the next six months; half of the panelists held this view in the July survey. About 57% of panelists in the current survey believe that the European crisis will result in the sales of their firm remaining the same over the next six months; this is higher than the 47% of panelists who held this view in the July survey.
• In the goods-producing sector, 70% of the panelists believe that sales will fall over the next six months due to the European crisis. About one quarter of the TUIC sector panelists believe that sales will fall over the next six months. This view is held by 21% of FIRE sector panelists and 33% of the services sector panelists.
• Almost two-thirds of the panelists do not expect the third round of quantitative easing to indirectly affect their company’s sales over the next 6 months. Over three-quarters of the panelists in the goodsproducing sector, the services sector, and the TUIC sector hold this view. The panelists in the FIRE sector, however, have a different view in that 73% of panelists expect that the third round of quantitative easing will indirectly affect their company’s sales over the next six months.

SURVEY PARTICIPATION AND DEFINITIONS

All survey panelists are NABE members who work for private-sector firms and industry trade associations.Panelists were classified into industry NAICS codes and then grouped into four sectors as follows: goods-producing; transportation, utilities, information, communications (TUIC); finance, insurance, real estate(FIRE); and services. Industry groupings, beginning with the January 2007 survey, are as follows:

Goods-producing:NAICS 11 Agriculture, forestry, fishery, hunting; 21 Mining; 23 Construction; 31-33 Manufacturing

.Transportation, Utilities, Information, Communications (TUIC):NAICS 22 Utilities; 48-49Transportation & warehousing; 51 Information–publishing, software, broadcasting, Internet publishing andproviders, telecommunications, etc.Finance, Insurance, Real Estate

(FIRE):NAICS 52 Finance and insurance—credit intermediation,including commercial and savings banks, credit unions, mortgage bankers; securities and other financialinvestments, trust, pension funds; health insurance and other insurance; 53 Real estate, rental, leasing.

Services:NAICS 42 Wholesale trade; 44-45 Retail trade; 54 Professional, scientific, technical services; 62 Health care services; 56 Administrative, support, waste management & remediation services; 71 Art,entertainment, recreation; 72 Accommodations & food service; 81 Other services.

The charts and many of the tables display a Net Rising Index (NRI), a diffusion index calculated as thepercent of responses reporting rising results minus the percent reporting falling results. Thus, the index hasa possible range of +100 (all positive responses) to -100 (all negative), with 0 indicating an equal mix. Allresults shown are rounded to the nearest whole percentage; thus, details may not add to 100 and the NRImay not match the difference in rounded components. Shaded areas on charts indicate recessions.A total of 67 panelists responded to the survey; the number of panelists responding to each question isincluded in the tables. None of the panelists were from single-person firms; 28% in firms with 2-10 employees; 14% in firms with 11-100 employees; 17% in firms with 101-1,000 employees; and 41% in firms with more than 1,000 employees. Fifty-six percent of the firms had no sales from foreign-basedoperations; 27% reported one quarter or less of total sales from abroad; 6% reported between one quarter and one half of sales from abroad; and 11% indicated more than half of all sales were from abroad.

The NABE Industry Survey has been conducted quarterly since 1982. This survey is one of threeadministered by NABE; the others are the quarterly NABE Outlook and the semiannual NABE EconomicPolicy Survey. Founded in 1959, the National Association for Business Economics is the professionalassociation for people who use economics in their work. Dr. Nayantara Hensel, National Defense University; Tim Gill, National Electrical Manufacturers Association; Ken Simonson, Associated General Contractors of America; and Dr. Chad Moutray, National Association of Manufacturers, conducted theanalysis for this report.