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Home » NABE Survey: Demand Improves for First Time in 5 Quarters

NABE Survey: Demand Improves for First Time in 5 Quarters

By    MDM   Staff 
October 27, 2009
More about:  Economy
Input costs and prices continue to go up; job losses are moderating; and capital spending is positive for the first time this year.
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The National Association for Business Economics has released its October 2009 Industry Survey, which indicates improved demand for the first time in five quarters. All panelists in the survey expect growth in 2010.

Input costs and prices continue to go up; job losses are moderating; and capital spending is positive for the first time this year. Respondents indicated that credit is still tight, but less so than earlier in the year.
 
What the survey calls goods-producing industries continues see compression in some of these areas.
 
The  NABE Industry Survey report presents the responses of 78 NABE members to a survey conducted between Oct. 2 and Oct. 12, 2009, on business conditions in their firm or industry and reflects third-quarter 2009 results and the near-term outlook.
 
Some highlights:
Industry demand increased during the July to September period for the first time in five quarters. The goods-producing; finance, insurance, and real estate (FIRE); and services sectors all saw growth in the unit volume of demand. The transportation, utilities, information, and communications (TUIC) sector was the only broad industry group to post a decline.

Some 73% of firms believe real GDP will expand between 1% and 3% in 2010.
 
Profit margins widened for the first time in seven quarters, albeit at a modest pace. While goods-producing industries continued to experience compression in profit margins, the other three broad industry groups all recorded gains.
 
Price increases were more common than price cuts last quarter for the first time in a year. The share of respondents expecting price increases in the next three months exceeded the share expecting cuts by 15 percentage points, a margin not seen since July 2008.
 
Job losses appear to be slowly abating with the percentage of firms cutting payrolls falling to 31% from 36%. The percentage for firms adding jobs doubled from an all-time low of 6% in July to 12% in October. Respondents expecting their firms to add employees over the coming six months exceeded the number expecting job cuts for the first time since the recession began.
 
For the first time since October 2008, more respondents reported a rise in capital spending over the prior quarter than a decrease. Expectations for future capital spending improved for the fourth straight quarter and turned positive, on balance, for the first time in a year. As in the past two surveys, expectations were positive for spending on computers and communications equipment but negative for structures.
 
Materials costs appear to be increasing with the percentage of respondents noting rising prices slightly outpacing respondents reporting price declines. Labor costs remain extremely subdued, with only 9% of respondents reporting rising compensation.
 
A large but declining share of respondents indicated that credit conditions had a negative impact on their businesses during the third quarter of 2009, compared to the prior period. In addition, the number of panelists reporting a positive impact from credit conditions has also increased.
 
The majority of respondents indicated a reduction in inventories, but the percentage declined from the previous two surveys. 46% of firms reported that inventories were reduced during the third quarter; many of these firms indicated that the reduction in inventories reflects a need to cut costs and conserve cash. At the same time, 18% of firms reported building inventories in anticipation of stronger sales.
 
38% of respondents reported an increase in sales because of the fiscal stimulus enacted in February 2009, suggesting that the stimulus has had an impact for some firms, but that a majority of firms have yet to see tangible benefits.

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