US Economy Exhibits More Positive Growth

205

The US economy is exhibiting steady growth during the first-quarter of 2011. This is despite the conflict taking place in the Middle East and the earthquake and tsunami calamities that struck Japan. According to the National Association of Business Economics (NABE), more firms have reported upturn in sales, profits and continue to hire despite rising wages.

In the April 2011 NABE Industry Survey report, 72 NABE members were surveyed between March 16, 2011 and March 31, 2011, on business conditions in their firm or industry.

The report shows that a number of firms reported rising employment relative to declining employment increased to a new high since the inception of the NABE Industry survey in 1982. This rising employment is a continuation of the previous quarter’s increase. The employment outlook is also promising as it continues to improve. The employment rate moved up slightly from the previous quarter and has set another record level. The survey also shows that not one respondent expect employment to decline in the next six months at their firms because of significant layoffs.

Sales have also increased for a third consecutive quarter. In the April survey, 63% of the respondents reported sales, which is the largest percentage since 1994. Only 9% reported a drop in sales while all four major industry sectors said they experienced strong demand growth.

Economic expectations for economic growth in 2011 improved compared to the responses in the previous survey. There are 94% of panelists in the current survey who are forecasting that real GDP will increase more than 2%, while a sizable proportion of panelists, 40%, are expecting that real GDP growth in excess of 3%.

However, the panelists also anticipate that the political turmoil in North Africa and the Middle East. Sixty percent of the respondents said that higher costs should be expected and this is prompted by the political turmoil in Bahrain, Egypt, Tunisia, Syria and Libya. Fifty-two percent of the respondents are expecting economic growth to be weaker in 2011 because of protests and fighting in the region.

The March 11 earthquake and tsunami, which left nearly 28,000 people dead or missing and sparked a crisis at a nuclear plant, had less of an impact on the economic forecasts. About 31 percent said costs would be higher and 40 percent said it would weaken the broader economic recovery. But the survey used a series of special questions related to the disaster and recovery efforts in Japan. It found that the impact will remain small for both the short and long-term.

Profit margins continued to improve. Forty-five percent of survey respondents reported increased profitability, versus 15% who reported declines last quarter-the largest net positive response since 1983. Two of the four sectors (services and goods-producing) reported increases in profitability versus last quarter.

The share of respondents whose firms increased capital spending over the prior quarter held steady from the previous survey at 38%. The share indicating their firms decreased capital spending fell to its lowest level since the survey began in 1982, at only 3%. Expectations for future capital spending deteriorated following a sizable improvement in the previous quarter, but positive responses still exceeded negative ones by 53% to 10%. Expectations remained positive for future spending on both computers and communications equipment and on structures.

The April 2011 NABE Industry Survey results reflect building inflationary pressure in the U.S. economy. The survey recorded the highest percentage of respondents (35%) reporting an increase in pricing since the October 2008 survey. Price increases were especially prevalent in the goods-producing sector. Materials costs also continued to rise, with more respondents in all four sectors reporting that costs rose last quarter. The percentage of respondents reporting rising labor costs has jumped from 16% in the January 2011 survey to 35% in this survey. Expectations for future selling-price hikes and non-labor input costs also increased.

Shawn DuBravac of the Consumer Electronics Association, sees all this as positive signs for economic improvements. “NABE’s April 2011 Industry Survey makes clear that despite geopolitical concerns, higher oil prices, and uncertainties created by the disasters in Japan, the economy continues to recover,” said DuBravac.

“Job creation in the quarter, as well as the outlook for the next six months as measured by the number of firms increasing headcount, is stronger than we’ve seen in the entire survey history dating back to 1982. Supporting this growth, both recent results and the outlook for sales and profit margins continue to improve,” he said. “Companies appear to be positioning themselves for a firming economic environment by increasing capital expenditures. At the same time, risks remain present. NABE survey respondents view the Japanese disasters as a net negative. The survey findings reflect early signs of inflationary pressure as more firms raised prices last quarter and also expect to raise them in the coming quarter.”