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Poll shows more firms with higher sales but also higher costs, lower profits

(WASHINGTON) The US economy may have avoided a recession but will grow below trend for some time as firms face higher prices for a range of goods that will cut into profits, according to a panel of economists surveyed.

Economists in the quarterly National Association for Business Economics (NABE) survey were less pessimistic about the economy’s outlook in the June 19 through July 10 survey than they were in April, but said that price pressures would weigh on growth.

‘More firms reported higher sales, but also higher material costs and lower profits, in the second quarter than in the first quarter,’ said Ken Simonson, chief economist at the Associated General Contractors of America.

A record 75 per cent of the economists polled, representing a wide range of industries, said that their firms paid more for materials in the second quarter and expect to see higher prices now as well.

The 101 NABE members surveyed come from all sectors, ranging from manufacturing to financial services. NABE has been conducting this quarterly survey since 1982.

According to the latest survey, more firms are planning increases in capital spending, but continued slowing in the housing and tighter credit have had an impact.

‘More respondents than in the past two surveys said tighter credit market conditions have affected their business negatively for the most part,’ Mr Simonson said.

Still, 44 per cent of the respondents said that they expect inflation-adjusted gross domestic product (GDP) to grow at an annual rate above one per cent in the second half of this year.

But 45 per cent expect growth to be below one per cent and 10 per cent expect a decline.

Demand for goods and services increased at 44 per cent of the respondents’ firms and fell at 19 per cent, a rebound from the dramatically low levels seen in the first quarter.

But weakening US market conditions and soaring commodity prices are squeezing profit margins. For the second quarter in a row, reports of falling profit margins outnumbered those of rising margins.

Among the panelists, 30 per cent reported falling profits while 17 per cent reported rising margins.

And amid wide-ranging cost increases for commodities and goods, 35 per cent of the respondents said that their firms raised prices in the latest quarter, the highest since April 2007.

‘Tighter credit market conditions appear to continue to be having an impact on the economy,’ the NABE survey stated.

Among those surveyed, 41 per cent stated that tighter conditions have affected business, an increase from 39 per cent in the April survey, and 26 per cent in the January survey.

But the share of respondents that expect a further substantial slowdown in the housing market over the next six months dropped to 29 per cent from 45 per cent.

Even with slow growth to continue, employment levels are holding up, particularly in the services sector, the survey showed.

In the second quarter, 27 per cent of all respondents reported rising employment at their firms, while just 12 per cent reported job cuts.

But hiring plans for the next six months will involve caution, the survey showed.

‘Respondents to the July NABE Industry Survey were more varied than in the decidedly downbeat April survey about recent results and the next few quarters, but they were far from ebullient,’ said Mr Simonson. — Reuters

Source : Business Times - 22 Jul 2008