WASHINGTON - GDP and profits are expected to continue growing even though businesses reporting rising sales has remained unchanged since January and the number of firms reporting declining sales doubled from 10% to 20%, a study out Monday shows.
Those surveyed by the National Association for Business Economics were generally optimistic about expected sales, but the Net Rising Index declined four points to 44. Despite there being a decline, the expectation is still slightly higher than the readings in October and July 2016.
The NRI is a diffusion index that is calculated by taking the difference between the percent of firms that see the indicators in the Business Conditions Survey rising and the percent that see them falling.
The moderation in sales did not affect the actual and expected profitability in the survey showing that the NRI was up to 6 from 1 in January and from -5 in April 2016, suggesting profit margins have been on the rise. The expectation of profitability had mixed results, but the NRI still gained to 21 from 16.
The NRI for prices charged saw a significant bump from lingering around 10 for the past four quarters to 19 in this April survey. NABE President Stuart Mackintosh explained, "Profit margins improved with strength in prices charged, and sales continued to increase, although at a more moderate pace than the previous quarter."
In line with the general optimism seen, two-thirds of panelists surveyed between March 21 and April 6 expect GDP to be greater than 2%, while only 1% of respondents expect no growth or a decline in the next four quarters. This compares to the April 2016 survey where only 60% of panelists expected GDP growth to be above 2%.
This expectation of growth is down from the survey released in January where 69% of respondents expected GDP to grow more than 2%. This is not surprising given the relatively weaker than expected monthly data which has economists lowering their expectations for first quarter GDP, which will be released April 28.
A factor contributing to the drop in expected GDP growth from January is the strong dollar in the U.S., the survey said.
While a majority of panelists claim a strong dollar has neutral impacts on their businesses, 20% of businesses claim a negative impact, four times the number of businesses citing a positive impact. Forty seven percent of the goods-producing sector reported the strong dollar has a negative impact on their businesses.
This is congruent with other data found in the survey where 20% of goods-producing sector reported a fall in profit margins and 67% have reported an increase in material costs.
"Although the vast majority of respondents continues to cite no change in hiring or investment decisions due to post-election developments, those from goods-producing firms were the most likely to cite policy-related changes in U.S. hiring and investment activity," Survey Chair Emily Kolinski Morris said in a statement.
More than half of goods-producing businesses cited rising interest rates being a negative causing higher costs, but none of respondents from the finance, insurance, real estate industries claimed it to be a negative. Instead 40% saw raised interest rates as a positive due to increased interest income.
Generally, raised interest rates merited a balanced reaction from firms with 38% of businesses citing a positive impact related to improving economic conditions, followed by 36% of firms remaining neutral on the question.
Employment in the first quarter saw little growth, with 24% of firms reporting increases, down from 27% in January and 29% a year ago. There has been a slight rise in the percentage of firms reporting shortages in skilled labor to 32% from 27% in January. There has also been a rise in the percentage of firms reporting no shortages to 54% in the April survey, up from 50% in January.
The NRI for total capital spending saw a decrease since January from 21 to 17. "The share of respondents that anticipates expecting higher spending in the coming quarter decreased by 15 percentage points," the survey reports.
In regards to policy changes, 49% of panelists for the most part do not expect changes in the Affordable Care Act to have any impact on their firms, with the second highest percentage of 17% of firms not knowing what impact it would have on their firm. More than half claimed that they don't expect any changes relating to the ACA would affect their firms.
