NABE Survey Offers Hope For Continued Expansion, But At Slower Pace

Still difficult to pass on price increases to customers, survey shows.

The July 2006 survey from the National Association for Business Economics suggests continued business expansion, but at a slower pace, according to the 170 survey respondents.

Respondents were grouped into four sectors (goods-producing, transportation/communications/utilities (TUC), services, and finance), plus a small number included in the total but not one of the major sectors.

“Results of the July NABE Industry Survey point to continued economic growth but at a slower pace, and with continuing price pressures,” said Jim Meil, Chief Economist, Eaton Corp. “Goods producers in particular reported a deceleration in demand, diminished margins, and tighter capital spending.”

Meil also commented that respondents generally reported difficulty in passing on price increases to customers in the second quarter of 2006, but are still planning on price increases in the months ahead. 

Survey highlights include:
• Price and wage increases were reported by a smaller percentage of firms in this survey than in any of the last two years.
• Industry profit margins showed the least improvement in three years. For the second straight quarter, the share of firms with rising profit margins fell, and the share with falling profit margins rose.
• The share of respondents reporting a shortage of skilled labor dipped compared to the April and January surveys. As before, few respondents reported shortages of unskilled labor, raw material or intermediate inputs, or capital goods.
• The NABE panel has become less optimistic on 2006 real GDP growth, with 60 percent expecting growth to be in the 2-3 percent range for the second half of 2006 and 28 perecnt expecting growth in 3-4 perecnt range.
• Growth in capital expenditures continued in the second quarter.  The net rising index (NRI) dropped below 30 percent for the first time in six quarters.  However, at 25 percent, the number is still considered solid.  The lower number was a direct result of a drop-off in the goods-producing sector NRI reading.  The capital spending growth is expected to continue over the next year.

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