NABE Business Conditions Survey

January 2020


NABE Panel Reports a Rosier View of GDP Growth, As Outlook Brightens for Sales, Employment, and Wages

The January 2020 NABE Business Conditions Survey report presents the responses of 97 NABE members to a survey conducted December 23, 2019 – January 8, 2020, on business conditions in their firms or industries, and reflects fourth-quarter results and the near-term outlook.


COMMENTS: “Respondents to the January 2020 NABE Business Conditions Survey are more bullish about economic growth over the coming 12 months than they were in October,” said NABE President Constance Hunter, CBE, chief economist, KPMG. “As in the October 2019 survey, about two-thirds of respondents expect inflation-adjusted gross domestic product (real GDP) to increase by 1.1% to 2.0% over the next four quarters. But the share expecting stronger growth jumped from 20% of respondents in October to 31% in the current survey.” 

“For the first time in a decade, there are as many respondents reporting decreases as increases in employment at their firms than in the previous three months,” added NABE Business Conditions Survey Chair Megan Greene, senior fellow, Harvard Kennedy School. “However, this may have been due to difficulty finding workers rather than a pullback in demand. There was a significant increase in the percentage of firms reporting shortages of unskilled labor, while nearly half reports shortages of skilled labor.

“Roughly half of respondents reports that their firms raised wages and salaries in the past three months, while an even larger share—62%—expects their firms will increase pay in the coming quarter. Similarly, more respondents in this survey than in the October survey report they expect increases in their firms’ short-term sales, profit margins, and selling prices. While most respondents suggest their firms have not felt much impact from the tariffs and countermeasures over the past year,” continued Greene, “respondents from goods-producing firms report their companies have experienced negative sales and higher costs.”



• The panel’s consensus outlook for the U.S. economy, as measured by year-over-year growth in inflation-adjusted gross domestic product (real GDP), remains positive, and, in fact has improved since the October survey. A majority of panelists (67%) still expects growth of 1.1% to 2.0% over the coming year, but a larger share of respondents than in October—30% compared to 20%—expects growth of 2.1% to 3.0%. An additional 1% of respondents now expects growth of 3.0% to 4.0%.

• The Net Rising Index (NRI) for sales—the percentage of panelists reporting rising sales minus the percentage reporting falling sales—fell for a third consecutive quarter to 15, the lowest reading in nearly four years, and a notable departure from the highest reading of 37 in April 2019. The NRI for anticipated sales increases over the next three months rebounded from October’s decline, advancing 10 points to 30.

• For the first time in a decade, as many respondents report a decrease as report an increase in employment at their firms in the previous three months. While respondents from the finance, insurance, real estate (FIRE) sector, on balance, report employment increases (resulting in an NRI of 29), NRIs are negative for the services (-5), goods-producing (-18) and transportation, utilities, information, and communications (TUIC) (-20) sectors.

• As was the case in October, equal shares of respondents report rising and falling profit margins at their firms in the fourth quarter of 2019. The NRI for profit margins is unchanged at 0, slightly lower than a year ago, when it was 3. Looking ahead, expectations for profit margin increases are widespread among the four industry sectors. Overall, the forward-looking NRI for profit margins increased 19 points to 20 in January. The goods-producing sector registered a 42-point improvement—from an NRI of -6 in October to 36 in January. The NRI for expected profit margins is 22 for the services sector, 14 for the FIRE sector, and 0 for the TUIC sector.

• The NRI for prices charged increased to 8 from 3 in the October survey, as a smaller share of respondents report their firms reduced prices (12% in the current survey compared to 16% in October), while the share raising prices held steady at 20%. However, 33% of goods-producing firms cut prices. Expectations for price increases at respondents’ firms are more widespread than they were in October. The NRI for expected prices charged in the next three months jumped from 14 to 26. Respondents from goods-producing firms are the most optimistic looking forward, with 60% of those survey participants expecting increases.

• Materials cost increases continued to be more common than decreases at respondents’ firms, resulting in an NRI of 24, almost identical to the reading of 25 in October. Increases were distributed similarly across sectors, with NRIs ranging only from 21 to 30. Expectations, though, are the highest since January 2019, with an NRI of 33. 

• Wage and salary growth at respondents’ firms rebounded in the fourth quarter of 2019, reversing a slowdown observed in the previous two quarters. The NRI for wages and salaries increased to 52, up 22 points from October. A majority of respondents (62%) expects wages and salaries to rise over the next three months. The forward-looking NRI for wage costs is 62, up 18 points from the October survey.

• There is a notable increase in the share of respondents reporting shortages of unskilled labor shortages—from 11% in October to 18% in the current survey—marking a new high for this labor-input. The percentage of respondents reporting skilled labor shortages held steady at 43% in January 2020, and remains below the January 2019 peak of 53%. In contrast, 43% of panelists report no shortages of labor, capital goods, or other inputs at their firms.

• Most survey respondents report their firms have taken one or more steps to address difficulties in staffing. Raising wages remains the most common action to address staffing difficulties, cited by 47% of respondents. Training internal staff for promotion is cited by 44% of all respondents. Investing in labor-saving processes has become more common, with the share of respondents citing this step rising to 36% in January 2020 from 34% in October 2019, and 22% in January 2019.

• High-skill positions remain the most difficult to staff, although the share of firms reporting such difficulty has declined. In January, 75% of respondents cite difficulty hiring for high-skill positions, down from 82% in October. A different trend is emerging for mid- and low-skill labor shortages: the share of respondents reporting difficulty filling mid-skill positions rose to 55% in January, up from 45% in October. Difficulty filling low-skilled positions rose to 26% in January, up from 17% in October.

• The NRI for capital spending at firms edged up to 18 from 17 in the fourth quarter of 2019, but remains at its second-lowest level since 2016. Respondents from the goods-producing and TUIC sectors report large declines in capital spending at their firms, although the forward-looking NRI for capital spending in the goods-producing sector rebounded. There was an uptick in the percentage of respondents reporting an increase in capital spending on equipment and information technology at their firms—from 30% in October to 36% in January—as well as spending on structures.

• Sixty-one percent of respondents report that tariffs and/or countermeasures did not impact their business in 2019. There are substantial differences among sectors: about three-fourths of FIRE (76%) and services sector (75%) respondents report no impact, compared to 50% of TUIC and 12% of goods-producing respondents. For those respondents indicating that tariffs have had an impact on their business, 20% cite negative sales—including 41% of those from goods-producing firms. The second-most cited impact is higher costs, noted by 19% of respondents—also led by those from goods-producing firms at 59%.

• Sixty-three percent of respondents do not expect significant impacts on their 2020 sales outlook from the latest developments in international trade. Forty-three percent of respondents are taking a “neutral position” and 20% expect “no impact” on their sales outlook for 2020. Fifteen percent of respondents expect a positive, and 15% expect a negative impact on their sales outlook for 2020.

• A majority (54%) of respondents views the Federal Open Market Committee’s easing of the Fed funds policy rate as favorable for business conditions in 2020. On the other hand, 34% of respondents anticipate no impact, and 6% of respondents view the policy as unfavorable.

• Thirty-eight percent of respondents expect “no significant impact” on their firms in 2020 from “cyber” developments, such as e-commerce, “cloud” services, artificial intelligence, machine learning, or autonomous equipment. Twenty-six percent of respondents expect sales to increase, and 23% expect lower costs. Some panelists foresee a negative impact from cyber developments: 10% expect higher costs, 4% anticipate decreased market share, and 3% expect decreased sales. 

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