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Business Economists See U.S. Economy Softening

July 16, 2012
Majority predict that fiscal cliff and expiring tax cuts would lead to lower sales.

Strong sales earlier in the year appear to be waning as the economy slows down, according to the July industry survey from the National Association for Business Economics.

While 60% of the business economists surveyed in April reported rising sales, only 39% did so in the July survey. Similarly, 40% reported rising profit margins in April, while 29% did so in the latest survey.

NABE panelists worried that things could get much worse if the Bush-era tax cuts expire in late December and the automatic government spending cuts take place in early January. Some 65% of the panelists expect sales to fall under this scenario, while 30% of the panelists expect that sales would stay the same.

“The survey results suggest worsening economic conditions through increased flatness in sales and profit margins, less upward pressure on employment, weakening optimism concerning real GDP growth, and rising concerns about the impact of the European crisis, potential U.S. government spending cuts in January, and the expiration of Bush-era tax cuts in December, although there are fewer inflationary pressures,” said Dr. Nayantara Hensel, an NABE director and professor of Industry and Business at National Defense University.

While the overall numbers declined significantly, the goods-producing sector continued to show relatively strong results. In that sector, 36% reported rising sales while 57% said sales were unchanged. Only 7% reported falling sales.

Hensel said optimism on real GDP growth has weakened. In the prior survey, approximately three-quarters of the economists predicted GDP growth of more than 2%. Now, she noted, 40% of the panelists forecast that GDP growth will be 2% or less. However, over half of the NABE panelists forecast real GDP growth between 2.1% and 3% from the second quarter of 2012 to the second quarter of 2013.

Hensel reported the outlook on employment has weakened. "Although over two-thirds of the panelists report unchanged employment in this survey, only about one-fifth report rising employment. About 23% of panelists believe that employment will rise over the next six months, which is lower than the 39% of panelists in the prior survey."

In the April survey, 33% of panelists in the goods-producing sector reported rising employment and 42% reported unchanged employment. But in the July survey, only 14% of panelists in the goods-producing sector reported rising employment and 71% reported unchanged employment.

Inflation Tamed

Survey results showed reduced inflationary pressures in the economy. Some 79% of the panelists reported unchanged prices charged by their firms, while only 9% of panelists reported rising prices. For the goods-producing sector, 57% reported unchanged pricing, while 14% said they had raised prices and 29% said they were falling.

There was also good news from the panelists concerning material costs. Almost two-thirds of the panelists reported unchanged materials prices while one-fifth reported rising materials costs. For goods-producing companies, the panelists said 54% saw unchanged materials costs while 38% had lower costs. Only 8% had seens materials costs increase.

The survey continues to forecast stability in capital spending over the next 12 months. However, for the goods-producing sector, economists surveyed said 38% of their firms had increased capital spending in the past three months.

NABE panelists said the European crisis has had a significant negative impact on their sales and is likely to continue to do so. Hensel explained: "About 47% of the panelists report that their sales have fallen due to the European crisis and about half of panelists expect the European crisis to lead to a decrease in their company’s sales over the next six months; this is more than double the 21% of panelists who held this view in the April survey.”

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