NABE Survey Finds Firms More Optimistic About 2013 GDP

Going into 2013, businesses were looking forward to a stronger economic climate, a National Association for Business Economics survey released Monday shows.

Despite fiscal uncertainties, sales, employment and capital spending firmed in the fourth quarter, and there was greater optimism about the year ahead, the survey of 65 NABE members found.

However, companies remained reluctant to commit to increased fixed investment.

The business economists foresaw only "modest" wage-price pressures.

Timothy Gill, Chair of the NABE Industry Survey Committee, said the January survey results "indicate that business activity advanced at a steady pace in the fourth quarter of 2012."

"Survey panelists also said that they are planning for stronger economic growth in the coming year than they were when the survey was last conducted three months ago," said Gill, who is Director of Economics at the National Electrical Manufacturers Association.

Among NABE's main findings:

--The percentage of panelists who reported rising unit demand minus the percentage who reported falling demand held steady. But the proportion of survey participants who reported rising sales fell from 39% in the third quarter to 37% in the fourth quarter.

--"NABE panelists are somewhat more optimistic about the economic growth outlook for the year ahead at the beginning of 2013 than they were three months ago," with 50% now expecting real GDP to grow between 2% and 4% in the current year -- up from 36%.

--"Uncertainties surrounding the fiscal cliff led to postponed hiring and capital spending in the last three months of 2012," as "a sizable minority" of 27% said their firms postponed some or all hiring in the fourth quarter.

--"More respondents reported stepped-up capital spending at their firms in the fourth quarter than reported reduced spending." However, the NABE summary went on to observed that "the margin between more vs. less capital spending narrowed compared to that reported in the October survey and surveys conducted throughout much of last year. Moreover, expectations for capital spending growth over the next 12 months weakened from a quarter ago."

--"The employment picture improved," with the percentage of panelists reporting that employment at their firms grew in the fourth quarter rebounding to 25%, nearly the same proportion as in the first half of 2012. However, "a slightly larger share than in October also reported falling employment."

--"Profit margins deteriorated in the fourth quarter as the percentage of panelists reporting rising margins slipped to 25% from 27% in October while the percentage reporting falling margins rose to 18% from 15% in October."

--More firms were able to raise prices, as 20% of the NABE panel reported rising prices at their firms while only 5% reported them falling.

--"Wage and salary gains picked up in the fourth quarter, with more than one quarter of the panel reported a rise in wages at their firm, up 10 percentage points from October.

--NABE members expectations for both prices charged and materials costs over the next three months "suggest modest inflationary pressure" in the first quarter of 2013. "Two-fifths of panelists expect their firms to raise prices charged, the highest share seen over the past year."

Although fewer companies expect to expand spending on plant and equipment this year than in the third quarter, but the number of firms expecting to increase employment has doubled.

Gill said "the economy continues to soldier on. Sales growth was stable, even amid widespread uncertainty surrounding the potential impact of the fiscal cliff, but gains in profit margins slowed."

"More than one quarter of survey respondents said that their firm postponed at least some hiring and capital spending in the three months leading up to the then-impending fiscal cliff," he said. "The broader labor market nevertheless gained momentum in the fourth quarter, but increases in capital spending slowed."

"While the panel was nearly unanimous in its view that the economy will expand over the next four quarters, it was split as to the degree of growth expected," Gill continued. "Half the panel reported that their firms' internal planning assumes real GDP growth of between 2 and 4 percent, while the other half sees growth coming in below 2 percent."

"Hiring plans are reportedly picking up, though capital expansion plans are slowing," Gill went on. "Still, more firms expect to add jobs and boost capital spending than to cut them in 2013."

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

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