NABE Business Conditions Survey


January 2015

Economy Still on Solid Ground; NABE Panel Reports Growth with Momentum into 2015, Lift from Low Oil Prices

The January 2015 NABE Business Conditions Survey report presents the responses of 93 NABE members and selected other industry economists to a survey conducted December 15, 2014-January 8, 2015, on business conditions in their firms or industries, and reflects fourth-quarter 2014 results and the nearterm outlook.

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

COMMENTS: “Business conditions continued to improve in the fourth quarter of 2014,” said NABE President John Silvia, chief economist for Wells Fargo Securities. “There are strong expectations for the first quarter, especially for jobs and wages, backed up by strong capital spending. Moreover, price and cost pressures appear to be subdued.”

“For many companies, the great deflation in oil prices was the most consequential economic shock of 2014. Three-quarters of survey panelists expect lower oil prices to impact their business in 2015, with most anticipating a positive impact,” said Survey Chair Jim Diffley, senior director, IHS. “Investment by the oil and gas industry has been a key driver in US economic growth. The big question for 2015 is the impact of lower prices on that investment and its concomitant supply chain.” 



• Sales growth improved slightly during the fourth quarter of 2014. Fifty-four percent of respondents reported rising sales at their firms in the fourth quarter survey compared to 49% in the October survey. Falling sales were reported by 15% of respondents, a larger share than was reported in the third quarter (7%). Also, a solid majority of survey panelists from all sectors expect that sales will rise during the first quarter of 2015.

• Profit margins grew at slightly more firms during the fourth quarter than in the third quarter of 2014. The net rising index (NRI)—the percent of responses reporting rising results minus the percent reporting falling results—rose to 24 in January, up from 16 in October’s survey. In 53% of respondents’ firms, profit margins were flat in the fourth quarter, while 35% of respondents reported rising margins, and 12% indicated that margins fell.

• Survey results reveal a sharp decline in rising prices. Only 16% of survey respondents reported rising prices at their organizations compared to 25% in the October and July surveys. The share of respondents reporting no change in prices increased from two-thirds to almost three-quarters (74%).

• Almost two-thirds (65%) of respondents expect no change in the prices their firms will charge in the first quarter of 2015. This is virtually identical to the 66% in the October survey who expected no change in prices in the fourth quarter of 2014.

• The NRI for materials costs dropped sharply again in January to a 13-year low of -13, from 16 in October and 27 in the July survey. The share of survey respondents reporting rising costs declined to just 13%, less than half of the 30% which cited rising costs in the April, July and October surveys. One-quarter of respondents reported falling costs.

• The share of panelists expecting materials costs to increase over the next three months also declined sharply, to 14% from 24% in the previous survey. The percentage of respondents expecting falling costs rose from 6% to 18%.

• The share of respondents reporting increased wages and salaries at their firms increased to 31% in the fourth quarter of 2014, up from 24% in October’s survey and 23% in the January 2014 survey. Still, this reflects a slowdown from the trend in wage and salary increases during the first half of 2014.

• Expectations for rising wages and salaries rose significantly, with over half (51%) of survey respondents anticipating increases in the first three months of 2015.

• A third of survey respondents (34%) indicated that employment increased at their firms. This is similar to the share of respondents who reported rising employment in the previous two surveys.

• Expectations for hiring in the first quarter of 2015 are stronger than those observations for the final quarter of 2014. The overall NRI for employment was 29, up from 25 in October. 

 • Capital spending jumped in the fourth quarter of 2014. More than half of respondents (51%) indicated increased spending at their organizations compared to the third of panelists who cited increased spending in October’s survey. The NRI reached an all-time high of 46 as only 5% of respondents reported a decline in capital spending. Panelists were similarly upbeat about future capital spending in the first quarter of 2015, as 48% expect their firms to increase capital spending during the first three months of the year.

• Investment in information and communications technology was even stronger than overall capital spending, with 56% of respondents reporting increases in the last quarter of 2014.

• Compared to other categories of capital spending, a smaller share of respondents (27%) indicated their firms increased outlays for structures in the past three months, and two-thirds reported no change.

• The January survey results revealed no significant changes in the level of reported shortages compared to conditions over the previous year. More than half of respondents (56%) reported no shortages at their firms—a percentage slightly lower than the average reported over the last year. Difficulty finding skilled labor continues to be the most-often-cited challenge, with the share of panelists reporting this shortage increasing from 24% in October to 27% in January; the shortages in this category were broadbased across the industry sectors.

• Expectations for economic growth continue to improve in the January survey. Two-thirds of respondents expect growth to average between 2% and 3%. Ninety-three percent of panelists currently expect GDP growth in the fourth quarter of 2015 to be greater than 2.0%.

• The massive decline in oil prices is expected to have an impact on a majority of the survey respondents’ firms. Three-quarters of panelists suggested their businesses will feel the effects. More than half (57%) indicated that the latest move in oil prices would have a positive impact on their businesses, while 18% said it could have a negative impact.

• The change in the political balance of power in Congress following the mid-term elections is not expected to have any material impact on most firms. Eighty-five percent of panelists indicated they do not anticipate any effect on their businesses’ capital spending or hiring plans from the results of the recent elections.

• The survey asked panelists if their firms had difficulties filling open positions over the last three months of 2014. Of the 79 responses received, a significant majority (63%) indicated there was no difficulty filling open positions, although 57% of respondents from the goods-producing sector experienced difficulty filling open positions during the last quarter of the year, up from 45% in the previous quarter.

• Both this survey and the October 2014 survey asked whether the economic slowdown in the Eurozone would have a material impact on panelists’ firms or businesses. Of the 91 responses received, slightly less than a majority (46%) indicated that it would have a significant negative or minor effect on business outcomes.

• NABE also asked survey participants if the slowdown in China would have a material impact on their firms or businesses. Of the 90 respondents, 42% indicated that it would have a significant negative or minor negative effect on their business outcomes.