Businesses Wary About Economic Recovery

The National Association for Business Economics survey says 30% of businesses reported falling profit margins.

U.S. companies remain cautious about the economy despite some signs of improvement as they battle rising costs and squeezed profit margins, a survey by The National Association for Business Economics (NABE) showed on July 21. The group said its quarterly poll found a split on growth expectations for the world's biggest economy, an improvement over the first-quarter survey.

"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," Ken Simonson, chief economist of Associated General Contractors of America, said.

Of the survey's 101 respondents -- economists at businesses and industry associations -- 44% forecast annual gross domestic product (GDP) growth above 1% in the second half of the year. Forty-five percent saw sluggish growth between zero and 1% and 10% expected a decline. The government estimated first-quarter GDP growth at 1%; the initial estimate of second-quarter growth is due July 31.

Forty-five percent of the panelists said they were more pessimistic about the outlook for the year as a whole compared with their views in April, while 13% were more optimistic than before. "More firms reported higher sales, but also higher materials costs and lower profits, in the second quarter than in the first quarter," Simonson said.

Firms' demand for goods and services surged 44% in the April-June period, representing a sharp rebound from the April figures. But at the same time a record 75% of respondents reported higher materials costs in the past quarter, the most since the question was first asked in 1994, and expect to pay more in the current quarter, the NABE said.

Seventy-seven percent of the panelists expect non-labor costs to increase in the current quarter. At the bottom line, weakening market conditions and soaring commodity prices continued to squeezing profit margins for a second consecutive quarter. Thirty percent of respondents reported falling profit margins, nearly double the 17% posting rising margins.

More than a third (35%) of respondents said their firms raised prices in the latest quarter, the highest percentage since April 2007, the NABE said.

"Hiring plans for the next six months are cautious, although slightly more firms plan to add jobs than cut them," Simonson said.

Capital spending plans were nearly unchanged from April, with more firms planning increases than cuts.

Copyright Agence France-Presse, 2008

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