NABE Business Conditions Survey 

October 2020

NABE Panelists Report More Widespread Growth in Sales and Profit Margins;
Expect Further Gains in Fourth Quarter 2020, and a Rise in GDP over the Next 12 Months

The October 2020 NABE Business Conditions Survey report presents the responses of 92 NABE members to a survey conducted October 2-14, 2020, on business conditions in their firms or industries, and reflects third-quarter 2020 results and the near-term outlook.  


COMMENTS: “The October NABE Business Conditions Survey shows that firms are continuing to gain ground since the sharp economic downturn experienced in the first half of the year,” said NABE President Manuel Balmaseda, CBE, chief economist, CEMEX. “This momentum is expected to continue through the rest of 2020. In addition, more respondents than in the July survey anticipate stronger growth in inflation-adjusted gross domestic product over the next year.”  “More respondents in this survey report continued improvements, especially in sales and profit margins, at their firms during the past three months than in the July survey,” added NABE Business Conditions Survey Chair Holly Wade, executive director, NFIB Research Center. “Capital spending is also picking up steam, with more firms investing in their businesses over the past three months, and more planning to do the same in the next three months. “The employment picture is less rosy, with many firms still holding back on wage and staff increases,” continued Wade. “While slightly more respondents report an increase in employment at their firms over the last three months than in the previous survey, more also report a decrease in employment. Most firms are also forgoing raises to control costs with 70% of respondents' firms reporting unchanged wages and salaries over the last two quarters, the highest reading since January 2014."



• The panel’s consensus outlook for the U.S. economy, measured by year-over-year growth in inflation-adjusted gross domestic product (real GDP), continued to improve in October compared to that in the two previous surveys. Eighty-nine percent of panelists expect real GDP to increase from the third quarter (Q3) of 2020 to Q3 2021. Only 9% of respondents expect the real GDP change to be zero or negative, compared to 31% of respondents who held this view in the July survey when asked about the outlook for the 12 months ending Q2 2021.

• For the first time since April 2019, a majority of respondents' firms reports increased sales at their firms, with 52% indicating rising sales during Q3. The Net Rising Index (NRI) for sales—the percentage of panelists reporting rising sales minus the percentage reporting falling sales—surged upward, increasing 47 points to 33, up from -14 in July. The forward-looking NRI for anticipated sales over the next three months also rose, adding to the sharp increase reported in the July survey. The NRI for anticipated sales increased 13 points, from 18 in July to 31, with positive readings in three of the four industry sectors.

• Profit-margin increases were more widespread in Q3 2020, but remained less prevalent than decreases among respondents’ firms, with the NRI for profit margins increasing 21 points to -4. The share of respondents reporting rising profit margins increased from 15% in July to 21% in October, while the percentage reporting falling margins declined 15 percentage points—from 40% in July to 25% in October.

• The NRI for prices charged returned to neutral in October—registering +1—following the sharp decline during the first half of 2020, that brought the NRI in July to its lowest level since 1987. NRIs by sector, however, vary significantly. The NRI for goods-producing firms is 21, after registering -40 in July. But the index for finance, insurance, real estate (FIRE) sector firms remains negative with an NRI of -19. Between these extremes are the NRI for services, with a reading of 3, and the NRI of 8 for the transportation, utilities, information, communications (TUIC) sector. The share of respondents expecting price increases in the next three months rebounded from levels in the previous two surveys to 26% in October, resulting in an NRI of 20. Six percent anticipate falling prices in the next three months.

• The NRI for materials costs also rebounded from two quarters of negative readings to a reading of 10. All sectors registered positive NRIs, led by goods-producers at 15, bouncing back from -56 in July. The NRI for expected costs rose modestly, from 1 to 8, having been as low as -21 in April.

• Hiring at respondents’ firms remains depressed. The third-quarter NRI for employment levels over the last three months is -17, compared to -19 in the July survey. Even as the NRI improved, the share of respondents indicating there was decline in employment at their firms rose to 27% from 24% in the July survey. At the same time, 9% report employment increases at their firms, compared to 5% in July. The outlook for employment deteriorated in Q3, as the NRI for hiring expectations declined to just 1, down from 6 in the July survey. Respondents from the goods-producing and TUIC sectors expect their firms will add jobs in the next three months. In the July survey, three of the four sectors had positive NRIs for expected employment change in Q3 2020.

• The NRI for wages and salaries rebounded 13 points to 4 in the October survey. The upward movement in the index reflects an increase to 17% from 11% in July in the share of respondents citing rising wages, and a decrease to 13% from 19% in the share reporting falling wages. The forward-looking NRI for wages and salaries moved from 0 in July to 15 in October.

• Almost two-thirds of respondents report no shortages of inputs in Q3 2020, similar to results from the July survey. The share of respondents reporting shortages is virtually unchanged in the current survey across all inputs, except for a decline in the percentage indicating intermediate input shortages.

• The NRI for capital spending improved, from -19 in July to -8 in October. Fewer respondents report continuing declines in spending, while more indicate their firms' capital spending increased during Q3 2020. However, service-sector panelists report not much improvement from the prior two readings. The forward-looking NRI for capital spending rose considerably, from -40 in April to 6 in October, as fewer respondents expect declines in spending over the next 3 months.

• In response to COVID-19, businesses continue to adjust employee headcount and wages. Imposing a hiring freeze is the most common response, cited by 69% of respondents.

• Respondents' near-term outlook improved slightly in October compared to that in the July survey. Thirty-six percent of respondents report a “Better” near-term in October, compared to 34% in July. Only 8% indicate their near-term outlook is “Worse” in October, compared to 12% in July.

• Twenty-three percent of respondents report that sales at their companies are at “more than 100% of pre-crisis level,” an increase from the 15% in the July survey.

• Thirty-one percent of respondents expect sales to return to normal “sometime in 2021,” while 24% do not expect sales to return to normal until sometime in 2022. Only 10% expect sales to return to normal by the end of 2020.

• Only 3% of respondents report that their firms applied, or are planning to apply, for Main Street Lending programs.

• Thirty-five percent of respondents indicate their firms have implemented new work-at-home policies, allowing “all employees” to work from home during the pandemic. Another 33% allow “most employees” to work from home, while 16% only allow “some employees” to work from home.

• Thirty-one percent of respondents report that their firms will wait for “progress regarding COVID-19” before changing their work-from-home policies. Twenty-two percent indicate their companies will wait until the second half of 2021, while 16% of firms plan to suspend work-from-home policies in the first half of 2021.

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