NABE Business Conditions Survey

January 2016

NABE Survey Reflects Continued Confidence in U.S. Economic Expansion; Pay Hikes Spread to More Firms, but Sales, Profit Growth Stall

The January 2016 NABE Business Conditions Survey report presents the responses of 148 NABE members and selected other industry economists to a survey on business conditions in their firms or industries conducted December 17, 2015 – January 5, 2016, and reflects fourth-quarter 2015 results and the near-term outlook.

COMMENTS: “Wage and salary increases are becoming more widespread, according to panelists in the January 2016 NABE Business Conditions Survey, even as sales growth and hiring at their firms flatten and they trim their expectations for expansion in the overall economy,” said NABE President Lisa Emsbo-Mattingly, director of research, Global Asset Allocation at Fidelity Investments. “Nearly half of respondents—the largest share in over a decade—say their firms had increased pay in the past three months, and an even higher share anticipates pay to go up in the first quarter of 2016. Meanwhile, there was little change in the percentage of respondents whose firms experienced—or expect—a quarterly increase in sales or employment. For the first time in three years, more than a quarter of panelists expect real gross domestic product to increase by just 2% or less in the next four quarters.”

”Equal numbers of participants report declining and rising profit margins at their firms, the first time since the July 2013 survey that rising margins did not predominate,” said Survey Chair Patrick Jankowski, senior vice president of research at the Greater Houston Partnership. “Nevertheless, more respondents than in the previous survey in October report that their firms had raised selling prices, and more firms experienced falling than rising input costs. Fewer panelists than in the past three surveys report difficulty filling open positions, and shortages of skilled labor are less prevalent among respondents’ firms than in the two previous surveys.”   


• Forty-seven percent of panelists report rising sales at their firms during the fourth quarter of 2015 compared to the 51% who reported rising sales in the October 2015 survey (reflecting third-quarter sales growth). Only 15% report a reduction in sales activity, a slight improvement over the October survey when 18% of respondents reported falling sales. The net rising index (NRI)—the percentage of respondents reporting rising sales at their firms minus the percentage reporting falling sales—held steady at the same NRI in the October survey: 32.

• On balance, respondents’ expectations for sales at their firms in the coming quarter are slightly less optimistic than in the October survey. Forty-eight percent of panelists expect sales to rise during the first quarter of 2016, a slight reduction from the 51% in October. Only 9% of survey panelists expect sales to deteriorate over the next three months, little changed from the 10% of panelists who held this view in October.

• Profit margin growth became less widespread for a second consecutive quarter, with 22% of survey panelists reporting rising profit margins and 22% reporting declining margins and resulting in an NRI of 0. Looking ahead, 28% of respondents expect profit margins to increase during the first quarter of 2016 while 52% expect no change over the next three months. Nineteen percent expect a downturn in profit margins over the next quarter—the largest share holding this view since the question was first asked in the July 2014 survey.

• Following a sharp decline in the October survey, the NRI for prices charged increased slightly in January as a larger percentage of panelists reported rising prices (18%) and the same share indicated falling prices (13%). Approximately a quarter of respondents from firms in the goods-producing and transportation, utilities, information and communication (TUIC) sectors reported falling prices during the fourth quarter.

• The share of respondents whose firms experienced cost declines rose from 22% in the October survey to 28% in the January survey while the share experiencing cost increases slipped from 21% in October to 20% in January. Expectations for cost increases in the next three months increased only slightly as the NRI moved up from 4 in October to 7 in January.

• For the first time in more than a decade nearly half (49%) of respondents report their firms’ wages and salaries rose in the latest quarter. The NRI for wages and salaries rose sharply to 45 in the January survey from 28 in the October survey—the highest NRI since at least January 2005. But wage increases were much less prevalent in the goods-producing sector (35% of respondents) and in TUIC firms (33%) than in the finance, insurance and real estate (FIRE) sector (61%) or the services sector (50%).

• Expectations for wage increases over the next three months are more prevalent than in the previous six surveys. (The question was not asked prior to July 2014.) Fifty-eight percent of respondents anticipate increases in wages and salaries at their firms, resulting in an NRI of 54, compared to an NRI of 40 in the October survey.

• Survey results reflect stable employment conditions. The NRI of 19 is unchanged from October 2015 survey. However, there is great disparity among the sectors. The FIRE and service sectors experienced widespread employment growth during the past three months whereas the goods-producing and TUIC sectors reported more job losses than gains at their firms.

• The share of respondents expecting their firms to reduce employment in the next three months rose to 15%—the largest share holding this view since the survey first asked this question in July 2014. However, the share of respondents expecting job increases at their firms during the next three months also rose, leaving the NRI unchanged. On balance, respondents from the FIRE and services sectors expect their firms to add employees in the next three months, whereas TUIC respondents anticipate further job cuts. Respondents from the goods-producing sector are almost evenly split in their hiring expectations.

• After falling for three consecutive quarters, the NRI for capital spending accelerated slightly in the fourth quarter. The NRI rose from 22 in October to 25 in the current survey. Thirty-seven percent of respondents report an increase in spending, up one percentage point from the previous survey, while 11% report a decline in spending, an improvement from the 14% in the previous survey. Expectations for the next three months remain similar to those in the July and October 2015 surveys, with the NRI unchanged at 26.

• Investment in information and communications technology last quarter was more prevalent than overall capital spending among respondents’ firms. IT spending appears to be strongest in the FIRE sector (an NRI of 58). NRIs of 27 and 31 in the TUIC and services sectors, respectively, also suggest strong information and communications spending in those industries. Expectations for spending over the next three months fell marginally, with the NRI for next quarter’s spending slipping from 38 to 36.

• The NRI for the structures component of capital spending fell from 21 in the October survey to 4 in the January survey. Only 20% of respondents report increased spending, down from 29% in the previous survey. Expectations for future structures spending also deteriorated since the October survey, with the NRI falling from 11 to 3.

• Less than one-third (30%) of respondents reports that their firms experienced shortages of skilled labor, down from 38% in the October survey and the smallest share of respondents indicating shortages since the April 2015 survey. As with the previous dozen surveys, there were few reports of shortages of other inputs.

• For the first time since the January 2013 survey, more than one-quarter of respondents (26%) expects inflation-adjusted gross domestic product (real GDP) to grow less than 2% over four quarters (in this survey, fourth quarter of 2015 to fourth quarter of 2016). Conversely, the share of panelists who expect real GDP growth to top 3% shrank from almost a third (30%) in the April 2015 survey to just 4% in the current survey. Even so, the majority of panelists (70%) expects GDP to grow between 2.1% and 3.0%.

• Roughly four out of ten respondents (42%) report that their firms had difficulty filling open positions over the last three months, a decrease from 49% in the previous survey. Panelists from the goods-producing sector are the only ones to report an increased difficulty in filling open positions. The TUIC sector had the least difficulty with less than two out of ten respondents (19%) from TUIC firms reporting difficulty in filling open positions.

• A small plurality of the respondents reports that lower commodity metal and energy prices had a negative impact on their firms. While 36% of respondents indicate their businesses were negatively impacted, 31% report that the decline in commodity metal and energy prices had a positive impact and 34% indicate the drop had no impact.

• A majority of the survey panel (62%) indicates the Federal Open Market Committee’s hike in shortterm interest rates will have no material impact on their businesses. Only 16% percent of respondents expect a negative effect while 23% expect a positive one.