NABE Business Conditions Survey

July 2014

New NABE Survey Shows Second-Quarter Business Conditions Improved; Stronger Growth Expected

The July 2014 NABE Business Conditions Survey report presents the responses of 85 NABE members and selected other industry economists to a survey conducted June 23-30, 2014, on business conditions in their firms or industries and reflects second-quarter 2014 results and the near-term outlook.

“Following an exceptionally weak first quarter, sales and employment grew during the second quarter, with the majority of survey participants reporting strong expectations for increased economic growth,” said NABE President Jack Kleinhenz, chief economist at the National Retail Federation. “Results from NABE’s July 2014 Business Conditions Survey suggest that growth is continuing at a majority of survey respondents’ firms, with an increasing number also reporting on employment growth. The number of respondents reporting increasing profit margins at their firms fell slightly. For the third survey in a row, an increasing share of panelists reported rising wage costs last quarter, although expectations for wage increases in the next three months are somewhat lower. In contrast, there was little change in the share of respondents reporting higher materials costs in either the second quarter or expected in the third quarter. One-fourth of respondents—up from one-fifth in the past two surveys—said their firms raised selling prices in the latest quarter, but a smaller 21% share expects their firms to do so in the third quarter. The share of respondents who reported an increase in employment at their firms jumped to 36% last quarter from just under 30% for the previous four surveys, and a similar share—37%—expects their firms to add employees in the upcoming quarter. The net fraction of respondents reporting increased capital spending at their firms topped one-third for the first time in nearly three years. Expectations for capital expenditures in the quarter ahead remain similarly high.”

“Panelists have become more sanguine about the overall economic outlook,” said Ken Simonson,survey analyst and chief economist, Associated General Contractors of America. “Nearly one-quarter of respondents expect growth in the economy over the next 12 months to exceed 3%. That’s triple the share who expected this higher growth rate in the previous survey figure. As before, none of the survey respondents expects growth to be negative. Survey respondents remain fairly confident in their assessments of risks to their forecasts and possible risks accruing to global events.  They were almost equally as likely to state that their forecast will be stronger than originally stated as they were that it would be weaker than originally forecast. Likewise, they do not view developing global events as having a material impact on their firms’ near-term investment and hiring strategies.”


• Sales growth became more widespread during the second quarter of 2014, as a larger majority of panelists reported rising sales at their firms while fewer reported declining  sales. The net rising index (NRI)— the percentage of panelists who reported rising sales less the percentage who reported falling sales—rebounded to 52 after dropping from 53 in the January survey to 44 in the April survey. In the current survey, 57% of respondents reported rising sales at their firms, only 5% reported falling sales, and 38% reported that sales were unchanged from the previous survey. An even higher net of 58% of panelists expect their firms’ sales to increase in the upcoming quarter.

• Profit margins grew at fewer firms last quarter. Profit margins were flat for nearly two-thirds (66%) of respondents’ firms in the second quarter, with just over a quarter (27%) reporting rising margins. In contrast, roughly a third of respondents reported rising margins at their firms in each of the three previous surveys. Similar to the past quarter, 29% of panelists expect their companies’ margins to rise in the third quarter.

• Price increases were more prevalent in the latest quarter. One-fourth of all panelists reported their firms charged higher prices over the second quarter of 2014, compared with on–fifth in each of the two previous surveys, while 8% reported their companies charged lower prices.

• Pricing momentum continued to decelerate as only 21% of respondents expect their firms to charge higher prices for their products or services during the next three months, down from 31% in the April survey and 43% in the January survey.

• Less than a third of panelists (29%) reported that their firms’ materials costs increased last quarter, down slightly from 31% who reported increases in the previous survey.  Slightly more than two-thirds (68%) expect materials costs to hold steady in the coming quarter.

• Wage increases continued to spread, as 43% of respondents reported that their firms raised wages last quarter, the third straight quarterly rise in that share and more than double the share reporting increases a year ago. Somewhat fewer panelists (35%) expect their companies to increase wages in the next three months.

• The majority of survey respondents (62%) indicated no resource shortages at their firms. While skilled labor remains the most-often cited shortage (reported by 22% of panelists), there were fewer shortages reported for both skilled and unskilled labor than in the April survey.

• A growing percentage of respondents noted that employment levels increased at their firms inthe second quarter—rising to 36% from an average of 28% in the previous four quarters. Thirty- seven percent of survey respondents expect to see employment growth at their firms in the next three months. In contrast, only 9% of respondents expect employment levels to decline, and the majority, 55%, expects them to remain unchanged.

• Capital spending expanded, on net, at more than one-third (35%) of respondents’ firms, the largest share in nearly three years. Panelists in all four sectors reported an increase in overall capital expenditures at their firms during the second quarter and, separately, in information and communications technology and in structures.

• Expectations for capital spending for the coming quarter virtually mirror the results reported for the second quarter. The outlook, on net, is positive for total capital expenditures, information and communications technology, and structures across all four sectors.

• Expectations for economic growth rose again. The percentage of panelists who expect real GDP growth to be greater than 3.0% over the next four quarters tripled from 8% in April to 24% in July.

• NABE asked survey respondents to assess the relative risks to their organization’s economic forecasts. There were approximately equal numbers reporting that they expected a stronger, weaker, or equally balanced risk to their forecast.

• A strong majority of survey respondents (62%) did not view global events as materially affecting their near-term investment and hiring strategies. Another 31% indicated a minor effect, with just 6% stating that global events were significant hindrances.