NABE Business Conditions Survey

July 2018

Sales Strong, with Costs and Wages Rising in Second Quarter of 2018; NABE Panel Expects Additional Investment and Job Gains

NOTE: This is a summary of the survey.  NABE Members can download the full report here

The July 2018 NABE Business Conditions Survey report presents the responses of 98 NABE members to a survey on business conditions in their firms or industries conducted between June 14 and June 27, 2018, and reflects second-quarter results and the near-term outlook. 

COMMENTS: “The results of the July 2018 NABE Business Conditions Survey indicate strong sales and steady profit margins in the second quarter of 2018, as well as increasing materials costs and wages,” said NABE Business Conditions Survey Chair Sara Rutledge, independent real estate economist and data science research fellow at StratoDem Analytics. “All panelists expect continued economic growth over the next 12 months, with most panelists anticipating inflation-adjusted gross domestic product— real GDP growth—to exceed 2%. Labor market conditions are tight, with skilled labor shortages driving firms to raise pay, increase training, and consider additional automation.

“Sixty-five percent of panelists report that their firms are not adjusting hiring and investment plans due to the 2017 Tax Cuts and Jobs Act, a share similar to that in the April survey,” added Rutledge. “Although the same percentage of panelists as in April, 67%, indicates no impact on hiring, investment, and pricing from trade policy changes, the percentage decreases to 37% of respondents from goods-producing firms, who note adjustments at their firms, such as delaying investments and raising prices.” 


For a fourth consecutive quarter, the share of panelists reporting rising sales at their firms increased. Fifty-eight percent of respondents report gains—the largest share since the January 2014 survey. The share of respondents reporting falling sales decreased to 8%, and the remaining 35% indicate no change over the past three months. The Net Rising Index (NRI)—the percentage of panelists reporting rising sales minus the percentage reporting falling sales—rose to 50 from 43 in April. This is the highest NRI value since the July 2014 survey.

Expectations regarding future sales rose sharply from those in the previous survey. Sixty-eight percent of respondents expect sales to increase, while the share anticipating falling sales is unchanged at 8%. As a result, the NRI rose to 60 from 46 in April, and the highest level since the April 2015 survey. Goods-producers remain the most optimistic, as 94% of respondents from that sector expect sales to rise, and none from that sector expects sales will decline.

One-third of respondents reports rising profit margins at their firms, a share slightly smaller than the 35% reported in both the April and January surveys. The percentage of panelists reporting falling profits declined by more than half—to just 7%, down from 16% in the previous survey. The NRI rose to 26, the highest value since January 2015. Similarly, 36% of respondents expect rising profit margins at their firms over the next three months, resulting in a forward-looking NRI of 25.

The NRI for prices charged jumped to 34 from 20 in April, and is the highest reading since early 2006. NRIs for all sectors increased from April. The goods-producing sector accounts for the largest share of respondents reporting rising prices, a result also evident in the April and January surveys.

The July NRI for materials costs is 65, up from 50 in the April survey. With all panelists reporting either steady or rising materials costs, this is the highest reading since 2011. Respondents’ expectations for cost increases over the next three months are similar, with the forward-looking NRI rising to 63 from 50 in April.

The NRI for wages and salaries remains strong, falling only slightly in July to 51 from the historically high index of 55 in April. The two-quarter average is the highest since NABE began analyzing the data in April 1982. Wage increases are likely to remain strong over the next three months, as the NRI for expected wage costs increased to 62 in July from 57 in April.

Job growth was widespread at respondents’ firms over the second quarter of 2018, with additional increases likely over the next three months. The NRI for employment rose from 26 in April to 41 in July— an all-time high. The forward-looking NRI rose from 30 to 38.

Capital spending trends improved further, with the NRI for total capital spending rising to 38 from 33 in April, and its highest reading since early 2015. Expectations for the next three months also improved: the forward-looking NRI is 44, up from 36 in the April survey. Trends in information and communications technology capital spending are much stronger than for structures.

All panelists expect the expansion in real gross domestic product (real GDP) to continue over the next 12 months. Eighty-seven percent of panelists expect real GDP growth of more than 2% in the coming four quarters, with a majority (68%) anticipating growth in the 2.1%-to-3.0% range. Seventeen percent expect GDP growth to be in the 3.1%-to-4.0% range, and 2% of panelists expect growth of 4% or more. The remaining 13% expect growth to be in the 0.1%-to-2.0% range over the coming four quarters.

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