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Economy in Brief

NABE Survey Indicates Weaker Demand & Lower Profits
by Tom Moeller  October 24, 2016

The Business Conditions Survey, published by the National Association for Business Economics, showed an easing in U.S. unit demand last quarter. The diffusion index reading (rising minus falling) fell to 22.0 from 25.5. While these figures show improvement from Q1'16, unit demand has been slowing since early 2014. Forty-three percent of respondents reported rising demand versus the 2013 high of 62.5%. This slowdown was accompanied by slightly weaker employment growth. The jobs index was little changed in Q3 at 18.6, and lower than the Q2'14 high of 31.3. A fairly steady 33.3% of firms raised job levels, but an increased 14.7% lowered them. Capital spending plans weakened. The index level of 19.4 was down q/q, and lower than the Q4'14 peak of 46.3. A sharply lower 31.2% of firms raised spending versus 51.2% at the Q4'14 peak.

Pricing power remained constrained by the slowdown in final demand. The prices paid index stabilized q/q at 11.5, but was below the 2011 reading of 29.0. A fairly stable 20.8% of firms raised prices, but an increased 9.4% lowered them. At the same time, a tighter labor market led to firmer earnings for workers. The net rising index for wages & salaries rose to 42.6, up sharply from 7.1 in Q3'13. Forty-five percent of firms raised compensation, triple the percentage three years ago. The combination of moderate pricing power and increased labor costs depressed earnings. The profits index declined slightly last quarter and has trended sideways for a year. These readings are sharply below the strength registered in Q4'13 when a net 26.2% of respondents earned more.

The NABE figures can be found in Haver's SURVEYS database.

NABE Business Conditions Survey (%) Q3'16 Q2'16 Q1'16 Q3'15 2015 2014 2013
Conditions Over the Last Three Months; Net Rising Index
  Unit Demand 22.0 25.5 4.3 32.3 31.8 44.5 37.4
  Employment 18.6 18.7 11.1 18.8 22.6 25.1 13.3
  Capital Spending 19.4 22.6 14.3 22.1 26.7 35.9 19.6
  Prices Charged 11.5 11.5 9.4 2.1 12.3 14.3 15.1
  Profit Margins -1.1 0.0 -4.6 7.5 9.0 20.6 13.2
  Wages & Salaries 42.6 39.8 35.3 27.8 39.0 31.5 17.6
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