Business Conditions Survey



January 2017



NABE Panel Reports Improved Sales, Flat Profits, and Rising Prices; Panelists Raise Expectations for Prices, Future Profits, and GDP



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

The January 2017 NABE Business Conditions Survey report presents the responses of 102 NABE members to a survey on business conditions in their firms or industries conducted between December 22, 2016, and January 11, 2017, and reflects fourth-quarter 2016 results and the near-term outlook.

COMMENTS: “The results of the most recent NABE Business Conditions Survey suggest a fairly robust business environment in the final months of 2016,” says NABE President Stuart Mackintosh, CBE, executive director, Group of Thirty. “Although profit margins remained flat, sales growth is becoming more widespread, and firms expect to achieve higher margins in the first quarter of 2017 through firmer pricing for their products and services. At the same time, materials cost pressures also appear to be increasing. Panelists also raised their expectations for economic growth by a fairly substantial margin, with just over two-thirds now expecting GDP growth above 2% in 2017.”

“Recent interest rate increases do not appear to be generating significant headwinds across firms in the NABE survey, although the reported impacts vary by sector,” noted Survey Chair Emily Kolinski Morris, CBE, chief economist, Ford Motor Company. “Firms continue to face policy uncertainty, but our panelists see a mix of risks and opportunities in the potential policy agenda of the new administration.”  

 

HIGHLIGHTS 

  • Sales increases were more widespread in the last three months of 2016 than in earlier quarters, based on responses to the latest NABE Business Conditions Survey. Nearly half (46%) of respondents report that sales rose at their firms, compared to just 10% who report a decline. The Net Rising Index (NRI)—the percentage of panelists reporting rising sales minus the percentage reporting falling sales—is 36, the highest reading in the past two years.
  • Expectations for sales in the coming three months also increased, with an NRI of 48. Looking ahead three months, the NRI for expected sales is 48, and is also positive for all four sectors represented in the survey. Respondents from the goods-producing sector are most optimistic (an NRI of 59), closely followed by those in finance, insurance, and real estate (FIRE), with an NRI of 57. The NRI for services is 45, while the NRI for sales growth in the next three months for transportation, utilities, information, and communications (TUIC) firms is the lowest, though still positive (25). 
  • Just over one-fifth (22%) of panelists report that their firms raised prices in the last three months, similar to the share that did so in the two previous surveys. In contrast, 35% of respondents expect their firms to raise prices in the coming quarter, roughly double the share who anticipated price increases in both the October and July surveys. 
  • The share of respondents reporting rising materials costs continues to grow, reaching 41% in January—the highest reading in the past 5-1/2 years. Expectations for materials cost increases in the next three months also moved higher, with 47% of respondents anticipating rising materials costs. 
  • While wage increases did not become more prevalent in the fourth quarter, 59% of respondents expect wages and salaries to increase at their firms in the next three months. The NRIs for both materials costs and wage expectations are the highest since questions regarding these factors were introduced in the July 2014 survey. 
  • On net, profit margins reported in the fourth quarter of 2016 were roughly flat, as the survey results show an NRI of 1—up only slightly from -1 in the October survey (covering profit margins for the third quarter of 2016). 
  • Respondents are more optimistic about profit margins in the coming three months, reflected in an NRI of 16—the highest index reading in the past 12 months. 
  • Employment conditions moderated, as 61% of respondents indicate that hiring at their firms was unchanged in the fourth quarter of 2016. Expectations for employment in the next three months are roughly unchanged from those in the October survey. 
  • Although there was little change in the share of respondents whose firms increased their capital spending in the last quarter, the expectations for capital spending in the coming three months rose to a two-year high. The NRI for expected capital spending rose to 33 from 28 in the October survey. Responses to special questions addressing recent interest rate increases show balanced impacts across firms represented in the survey, although net impacts varied by sector. Panelists from FIRE sector firms report a net benefit from higher rates, and those from TUIC firms report the largest net-negative, followed by goods-producing firms. Forty percent of respondents across all firms report higher borrowing and debt service costs as the most significant direct impact. 
  • Policy uncertainty under the new presidential administration is a minor, though measurable, factor in investment and hiring decisions, particularly for firms with less than 100 employees. Fifteen percent of panelists from firms overall, and 23% of those from smaller firms, report delays in hiring or investment decisions as a result of the election. An additional 4% of panelists (regardless of firm size) and 8% of those from smaller firms report that their firms redirected hiring or investment decisions until after the U.S. election. 
  • Respondents were asked whether six potential policy changes suggested by President Trump would present significant opportunities, risks, or both for their firms. Overwhelmingly, panelists see opportunity in increased infrastructure spending (96% of respondents), corporate tax rate reduction (91%) and pursuing deregulation (82%). They see risk in restricting immigration (94%), renegotiating trade deals (84%), and implementing a “border adjustment” tax (83%). 

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