NABE Business Conditions Survey

April 2015

NABE Survey Shows Outlook Remains Strong Despite Weak First Quarter

The April 2015 NABE Business Conditions Survey report presents the responses of 77 NABE members and selected other industry economists to a survey on business conditions in their firms or industries conducted March 17-31, 2015, and reflects first-quarter 2015 results and the near-term outlook.

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

COMMENTS: “The April 2015 NABE Business Conditions Survey results indicate a marked deceleration in growth across the board in the first quarter,” said Survey Chair Jim Diffley, senior director, IHS. “However, the panel did not pull back on bullish expectations for the upcoming quarter.”

“Over the past three months, the prices of crude oil and the dollar have not had a material impact on the outlook for the majority of respondents’ firms,” said NABE President John Silvia, chief economist at Wells Fargo. “Due to unusually harsh weather and dock strikes on the West Coast, growth in the first quarter appears to be an outlier within the broader economic outlook.” 

HIGHLIGHTS



• Sales growth declined during the first quarter of 2015. The share of survey participants reporting rising sales slipped back to match October’s result of just under 50%, down from January’s 54%. The Net Rising Index (NRI—see notes at the end of this survey report), while relatively high at 35, declined for a third consecutive quarter. In addition, a solid majority of the survey panel (71%) as well as large majorities of survey panelists from each sector expect that sales will rise during the second quarter of 2015, Panelists from the goodsproducing sector are the most optimistic in their sales outlook, with 94% of survey respondents from this sector anticipating rising sales over the next three months.

• Profit margins expanded at fewer firms in the first quarter, with 26% of survey respondents reporting wider margins (down from 35% in the fourth quarter). The NRI in April declined to 10, its lowest level since 2013.

• The percentage of survey respondents reporting rising prices doubled in April from January, to 32%. January thus appears as an outlier, as October and July BCS results were much more positive at 25%. With only 5% of the panel reporting falling prices, the NRI surged from 6 to 26, its highest since 2011. Respondents from the goods-producing sector account for the largest share reporting both the highest fraction of rising prices (47%) and falling prices (20%). That sector had similarly experienced falling prices at 19% of firms in January.

• Almost three-fourths (72%) of respondents expect no change in the prices their firms will charge in the second quarter of 2015, up from 65% in the January survey. The share of those expecting increases or decreases was smaller as compared to the previous survey results. Thus the overall NRI for prices in the next three months moved slightly downward, from 21 to 20. NRIs range from 38 in the services sector to 13 in the goods-producing sector. The largest shares of respondents expecting higher prices are from the TUIC sector (38%) and the services sector (31%).

• The NRI for materials costs moderated in April, to -4 from -13 in January, both well below the +27 in July 2014. The panel’s responses in April differed dramatically across sector. The percentage of respondents from goods-producing firms reporting falling costs increased from 40% in January to 57% in April. Expectations of cost increases flipped from a net negative (NRI of -4) to a net positive (NRI of +8) in April. As in January, however, more than two-thirds of respondents expect no change in the upcoming quarter.

• The share of respondents reporting rising wages and salaries at their firms increased again in the first quarter, to 45%, up from 31% in the January 2015 survey and 35% a year ago.

• After surging in January 2015, the April BCS results show expectations for rising wages and salaries were relatively stable from the previous survey. Forty-six percent of respondents anticipate increases, for an NRI of 44, compared to an NRI of 46 in January’s survey.

• There was a modest increase in the share of survey respondents reporting increased employment at their firms during the first quarter of 2015, with 35% indicating additional hiring compared to 34% in January (for the fourth quarter of 2014) and 28% in April 2014 (for the first quarter of 2014). In addition, the share of respondents reporting employment declines in the April survey edged lower over the quarter to 7%. As a result, the NRI edged up slightly from the previous survey to 28, the highest employment NRI since July 2014.

• As measured by the NRI, expectations for hiring in the second quarter of 2015 are unchanged from those reported in January for hiring during the first quarter of 2015. The overall NRI held steady at 29. However, the steady NRI reflects equivalent increases in the shares of respondents expecting both increases and decreases in hiring.

• Capital spending declined in the first quarter, giving up most of its strong fourth-quarter gains. Thirty-eight percent of respondents indicate that their firms increased capital spending, down from the 51% who reported increased spending in January. The NRI declined to 32 from 46 in January, as only 7% of the panel reported decreases. The NRI for future spending declined by ten points, to 30, as 38% of respondents expect capital spending increases in the second quarter, compared with the 48% in January’s survey who expected increases in the first quarter.

• Investment in information and communications technology fell back to third-quarter levels from a very bullish fourth quarter view reported in January. A third of the panel (33%) report increases in such investment during the first quarter of the year versus 56% in January. The NRI fell from 53 to 27. Expectations for increased spending in the first quarter of 2015 were also lower than in January, with 28% expecting increases, versus 45% in January.

• Compared to other categories of capital spending, a smaller share of respondents (27%) indicates their firms increased outlays for structures in the past three months; two-thirds report no change. Expectations for first-quarter 2015 capital spending on structures are also similar to those in January, with 29% of the panel expecting increases. Again, a larger percentage of panelists in April, 14%, expect upcoming declines compared with the share that expected declines in January’s survey.

• The April survey results reveal no significant changes in the level of reported shortages compared to the conditions in the first quarter of 2015 and over the previous year. Sixty percent of respondents report no shortages at their firms—a slightly higher percentage than held this view in the January survey. Difficulty finding skilled labor continues to be the most-often-cited challenge. However, the share of panelists reporting skilled labor shortages declined slightly from 27% in January to 19% in April, as a few companies began reporting shortages in intermediate inputs and capital goods. No such shortages were reported in the previous survey.

• The April survey results also show that expectations for solid economic growth remain intact despite the recent broad-based disappointment in economic data, suggesting the panelists likely attribute the firstquarter slowdown to temporary factors.

• The survey asked panelists if their firms had difficulties filling open positions over the last three months. Of the 63 responses received, a solid majority (57%) report there was no difficulty in filing open positions. This compares to the 63% in the previous survey reporting no difficulty, and the 67% reporting no difficulty in NABE’s survey six months ago. However, the share of panelists from TUIC and Services firms reporting difficulty significantly increased since the last survey (up 20% and 15%, respectively). The trend in survey results over the last six months suggests that perhaps a tighter job market is becoming more evident.

• Over the last 3 months, the unprecedented decline in the price of crude oil does not seem to be having a material effect on the majority (51%) of survey respondents’ firms/businesses. While one in five respondents suggests that their businesses have been negatively impacted, 30% indicate that the decline in oil prices is generating a positive effect. In January’s survey, more than half of the panelists (57%) suggested that the decline in prices would be a positive development for their businesses. However, given the recent oil price volatility, prices may need to stay low longer in order to achieve a sufficient and sustainable impact on firms.

• NABE also asked survey respondents if the economic slowdown in China has had a material impact on their firms/businesses in the last three months. Of the 74 responses received, 76% indicate that China’s slowdown has had no effect or a slight positive effect on their businesses in the past three months. Two out of ten (21%) report a significantly negative or minor negative effect on business outcomes. That percentage is only half the share of respondents in the previous survey who reported that the slowdown in China would have a negative impact. Sixty-two percent of panelists from goods-producing firms indicate a potential negative (significant or minor) impact, the largest share of respondents from any sector reporting such potential impact.

• The historic rate increase in the value of the dollar has not had any material impact on a significant majority (62%) of panelists’ firms/businesses in the past three months. Nonetheless, while a small share of respondents (8%) report a positive effect, a large percentage of panelists (30%) are reporting a significant or minor negative effect on their business in the past three months.

• The potential increase by the Federal Open Market Committee (FOMC) in its target for short-term interest rates in the next three months is not expected to have a material impact on 49 percent of survey panelists’ firms/businesses. Thirty-three percent of respondents indicate they did expect that there would be a negative effect; 18% would expect a positive effect from an increase in the FOMC rate target.

DOWNLOAD FULL REPORT (PDF) (Members only)