NABE Business Conditions Survey

April 2019


Sales and Profit Margins Improve in the First Quarter;
NABE Panel Finds Recent Tariffs Are Not Positive for Business



The April 2019 NABE Business Conditions Survey report presents the responses of 116 NABE members to a survey conducted April 1-10, 2019, on business conditions in their firms or industries, and reflects first-quarter results and the near-term outlook.

 

COMMENTS: “The results of the April 2019 NABE Business Conditions Survey indicate that all respondents still expect the economic expansion to continue within the next 12 months,” said NABE Business Conditions Survey Chair Sam Kyei, CBE, chief economist, SAK Economics LLC. “However, barely half of the panelists foresees growth in real gross domestic product to expand by more than 2% compared to two-thirds of respondents who expressed that view in the January 2019 survey. The share of respondents expecting slower growth at or below 2% jumped to nearly half from about a third in the previous survey. “More panelists report rising sales and higher profit margins at their firms over the past three months than in the previous survey,” continued Kyei. “At the same time, materials input costs remain elevated at respondents’ firms, especially goods-producing firms. Fifty-two percent of survey respondents report shortages of skilled labor at their firms, and the current tight labor market conditions continue to push firms to raise wages, increase training, and consider additional automation. While two-thirds (64%) of firms left their prices unchanged during the first quarter of the year, about a quarter (27%) saw increases in prices charged.” 

“The net impact of tariffs on American companies is not positive, and the negative impacts are especially noted within the goods-producing sector,” added NABE President Kevin Swift, CBE, chief economist, American Chemistry Council. “A year after the U.S. first imposed new tariffs on its trading partners in 2018, the recent tariffs have negatively affected more than one-fourth of respondents’ firms. Only 1% of respondents—those from goods-producing firms—indicate tariffs have had some positive impact on business conditions at their firms. “In response to trade concerns, panelists from goods-producers all report their firms had made changes in sourcing, supply chains or other practices. In contrast, about three out of four respondents in other sectors had not made any changes. “Regarding monetary policy, panelists generally see the Federal Reserve’s pause in raising short-term interest rates as being favorable to business conditions at their firms.”   

 

HIGHLIGHTS

• All survey respondents expect the U.S. economy, as measured by the change in inflation-adjusted gross domestic product (real GDP), to increase over the next four quarters. However, barely half (53%) of the panelists expects real GDP to rise by more than 2%, compared to 67% of respondents in the January survey.

• The Net Rising Index (NRI) for sales—the percentage of panelists reporting rising sales minus the percentage reporting falling sales—is 37, a significant gain from the reading of 29 in January. The change was about equally driven by an increase in the number of respondents reporting rising sales and a decline in the number reporting falling sales.

• Expectations for sales increases over the next three months also improved significantly, with the NRI rising to 54 from 26 in January. This brings these readings back in line with survey results from mid-2018.

• Profit margin increases became more prevalent in the first quarter of 2019, although increases were not as widespread as respondents reported in mid-2018. The share of respondents reporting rising profit margins increased to 32% from 23% in January, but a still-significant share reporting falling margins (15%) kept the NRI at just 17, well below the readings in the July and October 2018 surveys.

• On net, prices charged rose during the first three months of 2019, and are expected to rise further during the next three months. The NRI is highest for the goods-producing sector, from which the majority of respondents reports price increases both for the first quarter of 2019, and anticipates increases for the second quarter. In contrast, the current NRI for the finance, insurance, and real estate (FIRE) sector is 0, while respondents from transportation, utilities, information, communications (TUIC) sector firms expect a slight decline in prices over the next three months.

• The NRI for wages and salaries remains strong. April’s reading of 57 is just a notch below January’s all-time high NRI of 58. Wage increases are likely to become less prevalent among respondents’ firms, but are expected to remain solid; the forward-looking NRI for expected wage costs decreased from 74 to a still strong 59.

• Employment growth was less widespread at respondents’ firms in the first quarter of 2019, and the NRI declined to 22 from 25 in the previous quarter. The NRI of 30 for expectations for wage costs over the next three months suggests that the first-quarter decline was transitory.

• Capital spending increases remain less prevalent than in 2018, although capital spending improved since the previous survey; the NRI for capital spending is 29, up from 26 in January. The NRI for capital spending over the next three months reflects a similar recovery, with the index at 32, up from 20 in the previous survey. The NRI for equipment, information, and communications technology capital spending remains stronger than the indexes for all capital spending, but fell from 45 in January to 35 currently—well below its 2018 high of 49 in October. Capital spending on structures has not been as robust; the current NRI of 8 has been almost constant for a year.

• More than half of survey respondents (52%) report shortages of skilled labor at their firms. This is an increase from the 45% who reported shortages a year ago.

• In the April survey, 18% of panelists report no difficulty in hiring and 15% report no open positions. These shares are down modestly from 22% and 19%, respectively, in the previous survey. Respondents reporting no open positions are concentrated in the services sector, while all goods-producing and TUIC sector respondents report open positions at their firms.

• For those respondents reporting difficulties in hiring, the positions that are most difficult to staff are high-skill positions—cited by 78% of respondents—followed by mid-skill positions—cited by 49% of respondents. Raising wages remains the most commonly cited action to address difficulties in hiring, followed by training internal staff for promotion.

• While most panelists report no impact—in general or on net—at their firms from recent tariffs, a majority of goods-producing sector panelists (75%) reports negative tariff impacts at their firms.

• Goods-producing panelists report tariff impacts have most influenced higher costs (67%), higher selling prices (50%), and negative sales (42%). Goods-producers also report the most common adjustment to plans for hiring and investing at theirs firms are changes in sourcing/supply chain shifts.

• April survey results suggest that the pause in Fed funds policy rate increases appears to be favorable for business conditions.


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