NABE Panel: Pessimism Prevails Regarding Sales, Profits, Costs, GDP
Author:
"Respondents to the April NABE Industry Survey were notably downbeat about their own companies and the overall economy," said Ken Simonson, chief economist, Associated General Contractors of America."For the first time in five years, reports of falling profit margins outnumbered reports of rising margins in the first quarter of 2008, while demand at respondents’ firms grew more weakly than at any time since the recession of 2001. Thirty percent of panelists expect gross domestic product to decline, net of inflation, in the first half of 2008, while most others expect growth of less than 1%. Seventy percent say they are more pessimistic than three months ago. Roughly two-thirds paid more for materials last quarter and expect higher input prices in the April-June quarter as well. On balance, panelists expect to increase capital spending and hiring in the next few quarters, but more respondents than in recent surveys expect decreases. More respondents than previously reported negative effects from credit tightening. Nearly all expect the housing slowdown to continue over the next six months, but they split regarding its severity and whether it will affect their own business. Overwhelmingly, panelists expect no effect on their business from the depreciation speed-up in the fiscal ‘stimulus’ act or the Federal Reserve’s rate cuts and credit access liberalization steps. "
Highlights
Fewer than a fifth (19%) of NABE panelists said they expect inflation-adjusted gross domestic product (real GDP) to grow at an annual rate above 1% in the first half of 2008. Thirty percent of respondents expect real GDP growth to be negative. This is a much gloomier outlook than respondents reported in the previous survey. Seventy percent of panelists said they were more pessimistic about the outlook for the year as a whole compared with their views in January.
Growth in demand for goods and services at respondents’ firms fell dramatically into barely positive territory in the first quarter of 2008. Such a result is consistent with other evidence that the U.S. economy is slowing and may be in recession. Goods-producing firms fell into negative territory again, but this has occurred without recession in the past. Services-sector firms reported dramatically worse results this quarter, driving the total industry results down. Panelists in the other two sectors—transportation, utilities, information, communications (TUIC), and finance, insurance, real estate (FIRE)—reported little change from January.
Nearly two-thirds (66%) of respondents reported paying more for materials in the past quarter, the highest share since 2004 and second-highest since the question was first asked in 1994. Wage increases were more prevalent than in the previous two quarters. More than two-thirds (68%) expect non-labor input prices to rise in the next three months, while only 3% expect a decrease.
Weakening market conditions and soaring commodity prices are squeezing profit margins. For the first time since the spring of 2003, reports of falling profit margins (28% of respondents) outnumbered reports of rising margins (18%).
