Business Conditions Survey

April 2022

NABE Survey Panel Anticipates Increasing Cost Pressures, But Most Panelists Do not Expect Near-term Recession

The April 2022 NABE Business Conditions Survey report presents the responses of 84 NABE members to a survey conducted April 4-12, 2022, on business conditions in their firms or industries, and reflects first-quarter 2022 results and the near-term outlook. 

COMMENTS: “The results of the April 2022 NABE Business Conditions Survey show that cost pressures kept rising during the first quarter of 2022,” said NABE Vice President Julia Coronado, president and founder, MacroPolicy Perspectives LLC.   “Record-high percentages of panelists report that wages and materials costs increased.”

“Cost pressures are starting to impact profitability as well,” added NABE Business Conditions Survey Chair Jan Hogrefe, chief economist, Boeing Commercial Airplanes. “The April 2022 survey reflects the smallest share of panelists reporting rising profits since October 2020.

“Nevertheless, sales remained strong, with a majority of panelists reporting rising sales at their firms during the first quarter of 2022, and more than half reporting they expect sales to increase in the second quarter,” continued Hogrefe. “In addition, only 13% of panelists put the odds of a recession in the next 12 months at more than 50%.”

HIGHLIGHTS

 •  Roughly three-fifths of respondents report rising sales at their firms during the first quarter (Q1) of 2022— down from the record-setting shares of respondents that reported rising sales throughout last year. The share of  respondents reporting falling sales at their firms increased from January, but remained below 10%. Overall, panelists  anticipate sales at their firms will remain strong over the next three months; the forward-looking NRI—the percentage of panelists anticipating increased sales minus the percentage anticipating decreased sales over the next three months—is 53, up from 50 in the January 2022 survey.

•  The survey results reflect a further deterioration in profit margins. The NRI for profit margins declined to 9 in April from 19 in January, and is the lowest NRI for profit margins since the October 2020 survey. A majority of respondents (61%) expects profit margins at their firms will be unchanged over the next three months, while 22% expect them to rise, and 16% expect them to fall—resulting in an NRI of 6, the lowest forward-looking NRI for profit margins since April 2020.

•  The NRI for prices charged in Q1 2022 fell to 46 from the record high of 53 in Q4 2021. Looking ahead, the views of respondents are fairly evenly split, with 49% of respondents expecting the prices their firms charge to increase, while 48% anticipate prices to remain unchanged. Only 3% expect prices to decline.

•  The NRI for materials costs in Q1 2022 is 75, the highest reading since the question was first asked in 1984. For a third consecutive survey, no respondents report materials costs declined.

•  The percentage of respondents indicating that wages rose in Q1 2022 is 70% in April, up from 60% in the January survey, and the highest in the survey’s 40-year history. This is the seventh consecutive survey in which the NRI for wages has increased. In addition, for a fourth consecutive survey, no respondents report that wages declined at their firms.

•  Respondents express a wide range of views about the likelihood that the U.S. will enter a recession over the next 12 months. One out of eight respondents puts the probability at more than 50%, while nearly half (49%) of respondents puts the probability at 25% or less. Roughly one-third (38%) of respondents puts the probability at 26% to 50%.

•  Thirty-one percent of respondents report rising employment at their firms, similar to results in the last three  surveys. Looking ahead to the next three months, however, fewer respondents are optimistic than in the January survey. The share of respondents expecting rising employment at their firms is 39%, below the 50% reported in the January survey.

•  Investment for many companies remained elevated in Q1 2022, with the NRI for capital spending at 40, down slightly from 42 in Q4, and the second-highest level in seven years. The forward-looking NRI for capital spending increased from 38 in January to 40 in the April survey.

•  The NRI for equipment, information, and communications technology spending is 47, unchanged from the January survey, and the highest reading since Q4 2018. Approximately one-half of respondents notes rising activity in Q1 2022. The forward-looking NRI for equipment and IT spending rose from 40 in the January survey to 48 in the current survey. Forty-eight percent of respondents anticipate increased equipment and IT spending at their firms over the coming three months, with no respondents anticipating declines.

•  The NRI for capital spending on structures rose to a three-year high of 9, returning to positive territory after a reading of -6 in the January survey. The NRI for anticipated capital spending on structures rose to 18 in April, up from 4 in January.

•  Respondents report fewer shortages overall. Almost one-third of panelists indicates their firms have no shortages,  up from roughly one quarter in the January survey. The share of firms reporting both skilled and unskilled labor shortages declined, while the share reporting raw material and input shortages is unchanged. Of the respondents reporting shortages at their firms, most expect such shortages to resolve in 2023 or later.

•  The downside risk reported by the largest share of respondents (37%) is increased cost pressures. The impact of higher interest rates is listed as one of the biggest downside risks to their company's outlook by 22% of respondents.

•  A plurality of 24% of respondents indicates faster-than-expected ramping-up of supply chains is among the  biggest upside risks. Lower numbers of COVID-19 cases, fewer restrictions associated with preventing the spread of COVID, and safeguarding public health are also named frequently by respondents as major upside risks to their company’s outlook.

•  A majority of respondents indicates that their firms are passing on cost increases to customers. Fifteen percent of respondents report their firms are passing on all or nearly all cost increases to customers, while 45% state firms are passing on some cost increases.

•  Thirty-eight percent of respondents indicate that their firms are making product or service offering changes due to climate change. Approximately one-third of respondents notes that firms are monitoring possible regulatory changes  associated with climate change policy. Twenty-one percent of respondents report that their firms are making changes to input sourcing.