The July 2017 NABE Business Conditions Survey report presents the responses of 101 NABE members to a survey on business conditions in their firms or industries conducted between June 15, 2017, and June 28, 2017, and reflects second quarter 2017 results and the near-term outlook.
COMMENTS: “The results of the most recent NABE Business Conditions Survey show more widespread increases in sales, profit margins, hiring, and capital spending in the second quarter of 2017 than in the first quarter of the year,” said NABE President Stuart Mackintosh, CBE, executive director, Group of Thirty. “Materials cost pressures appear to be easing, but more firms are facing higher labor costs and difficulty in hiring, especially skilled labor. Expectations for economic growth have moderated since the previous survey, but 60% of respondents still expect real GDP growth above 2% in the coming four quarters.”
“Slightly over one-third of panelists reports that their firms have experienced some difficulty in hiring,” noted Survey Chair Emily Kolinski Morris, CBE, chief economist, Ford Motor Company. “But employment growth remains positive, and panelists do report some firming in capital spending, though not necessarily related to policy developments, as the vast majority of respondents continues to cite no change in hiring or investment decisions in the wake of post-election developments. Pricing power—or lack of it—and labor costs are generating some headwinds for a significant number of firms.”
• A larger share of the NABE Business Conditions Survey panel indicates that sales increased at their firms in the second quarter of 2017, compared to the share reporting increased sales in the first quarter. Half of the respondents—50%—reports sales gains at their firms, up from 45% in April. The percentage of respondents reporting decreased sales fell to 17% from 20% in April.
• Respondents remain generally optimistic regarding sales in the coming three months. The Net Rising Index (NRI)—the percentage of panelists reporting rising sales minus the percentage reporting falling sales—for expected sales rebounded to 47 in July, after declining to 44 in April.
• The share of respondents reporting that wages and salaries increased at their firms in the past three months rose 8 percentage points from the April survey. The percentage reporting no change fell 9 points, and only 2% report falling wages. The resulting NRI of 45 is the strongest index reading since the January 2016 survey, when the NRI was also 45.
• Expectations for wage increases over the next three months increased moderately from the April survey. Forty-seven percent of respondents expect wages to rise over the coming three months, up from 44% in the previous survey. This nudged the NRI upward to 45 in July, from 43 in April.
• The NRI for prices charged continued its recent upward trend, rising slightly to 22 in July from 19 in April. The share of respondents reporting rising prices increased to 29% in July from 25% in April, while the share reporting falling prices is unchanged.
• Respondents’ expectations for prices over the next three months suggest price increases will become less widespread. The NRI for future prices charged dipped to 22 in July from 24 in April.
• The materials costs NRI moved downward in the July survey to 27, after two consecutive quarters in the upper 30s. Respondents’ expectations for materials costs increases over the next three months similarly declined. The NRI for future materials costs fell to 30 in July from 36 in April.
• These sales and costs inputs over the past three months net out to a continued recovery in reported profitability in the July survey, after fairly weak results over the past two years. The share of respondents reporting profit gains increased to 29%, after hovering near 20% in the past six surveys. The percentage seeing profits decline fell further to 15% in July from 17% in April and 20% in January. The NRI rose to 14 in July from 6 in April and 1 in January, and is the highest index reading since July 2015.
• The NRI for employment in July is 25, an improvement from 16 in the April survey. This result reflects an increase in the share of respondents citing rising employment—34%—up from 24% in the April survey.
• For the employment expectations component, the NRI of 18 is unchanged from the April survey results, and is consistent with readings over the last four surveys.
• The NRI for total capital spending rebounded to 24 in the July survey, up from the most recent low of 17 in April. The share of respondents reporting decreases at their firms declined to 4%—the smallest share in a year—while the percentage reporting rising capital spending is near recent peaks at 29%.
• On the whole, panelists are also more upbeat about future capital spending at their firms in the next three months relative to their expectations in the April survey. Still, the shares of these more optimistic respondents are still smaller than in the January 2017 survey. The NRI of 23 for expected capital spending represents an increase of 7 points from April, but is still well below the most recent peak of 33 in the January 2017 survey.
• After relatively weak first-quarter GDP figures, the NABE panel’s expectations for growth in inflation-adjusted gross domestic product (real GDP) over the next four quarters has declined slightly. While a significant majority still expects growth to be above 2%, the share expecting growth in the 1-2% range rose 8 points to 38% in July.
• Slightly over a third of panelists reports that their firms faced difficulties hiring workers over the last three months, while only 27% report no difficulties. The remainder either did not try to hire or were unable to answer for their firm. For those firms that did face hiring problems, the most common approaches for recruiting new employees were an increase in salary offers or a focus on training internal candidates.
• Labor costs have the largest negative impact on 2017 year-to-date profits for U.S.-based operations in this survey: 34% of panelists report a negative impact on firm profits/net income from labor costs. Pricing power has the largest positive impact (19% of responses). However, an even larger share of panelists—28%—reports an unfavorable impact from pricing power. Interest rates are the only factor with greater percentages of panelists reporting a positive impact than a negative impact, at 12% and 9% respectively.
• As in the April 2017 survey, a large majority of respondents (76%) reports that their firms have made no changes in hiring or investment decisions in anticipation of potential changes in U.S. policies. Similar to results in the most recent surveys, large firms are slightly more likely than small firms to have made a change, the key difference being that larger firms are more likely to accelerate hiring decisions, while smaller firms are more likely to delay decisions.
• Few panelists indicate that their firms are likely to revisit long-term strategies as a result of the Trump administration’s decision to pull out of the Paris climate accord, with the vast majority reporting that their companies are either unlikely to make a change or are unable to determine if they will do so at this point in time.
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