Survey of economists: US sales and employment likely to grow + Report highlights

Most U.S. business economists expect corporate sales to grow over the next three months and hiring and pay to rise with them.

But a majority of the economists surveyed by the National Association for Business Economics say the corporate tax cuts that the Trump administration pushed through Congress have yet to affect their plans for hiring or investment. The administration had promoted its tax cuts, which were heavily tilted toward corporations and wealthy individuals, as likely to raise worker pay and promote corporate investment and expansion over time.

Findings in the survey are similar to recent ones from the Duke University CFO survey and the American Institute of Certified Public Accountants, which has a major office in Durham.

The NABE also said a majority of respondents from goods-producing companies said their companies were delaying investment, raising prices or taking other steps in response to the Trump administration’s trade conflicts with other nations.

The results of the quarterly survey being released Monday reflect responses from 98 of the NABE’s members between June 14 and June 27.

Highlights from the report

• For a fourth consecutive quarter, the share of panelists reporting rising sales at their firms increased. Fifty-eight percent of respondents report gains—the largest share since the January 2014 survey. The share of respondents reporting falling sales decreased to 8%, and the remaining 35% indicate no change over the past three months. The Net Rising Index (NRI)—the percentage of panelists reporting rising sales minus the percentage reporting falling sales—rose to 50 from 43 in April. This is the highest NRI value since the July 2014 survey.

• Expectations regarding future sales rose sharply from those in the previous survey. Sixty-eight percent of respondents expect sales to increase, while the share anticipating falling sales is unchanged at 8%. As a result, the NRI rose to 60 from 46 in April, and the highest level since the April 2015 survey. Goods-producers remain the most optimistic, as 94% of respondents from that sector expect sales to rise, and none from that sector expects sales will decline.

• One-third of respondents reports rising profit margins at their firms, a share slightly smaller than the 35% reported in both the April and January surveys. The percentage of panelists reporting falling profits declined by more than half—to just 7%, down from 16% in the previous survey. The NRI rose to 26, the highest value since January 2015. Similarly, 36% of respondents expect rising profit margins at their firms over the next three months, resulting in a forward-looking NRI of 25.

• The NRI for prices charged jumped to 34 from 20 in April, and is the highest reading since early 2006. NRIs for all sectors increased from April. The goods-producing sector accounts for the largest share of respondents reporting rising prices, a result also evident in the April and January surveys.

• The July NRI for materials costs is 65, up from 50 in the April survey. With all panelists reporting either steady or rising materials costs, this is the highest reading since 2011. Respondents’ expectations for cost increases over the next three months are similar, with the forward-looking NRI rising to 63 from 50 in April.

• The NRI for wages and salaries remains strong, falling only slightly in July to 51 from the historically high index of 55 in April. The two-quarter average is the highest since NABE began analyzing the data in April 1982. Wage increases are likely to remain strong over the next three months, as the NRI for expected wage costs increased to 62 in July from 57 in April.

• Job growth was widespread at respondents’ firms over the second quarter of 2018, with additional increases likely over the next three months. The NRI for employment rose from 26 in April to 41 in July— an all-time high. The forward-looking NRI rose from 30 to 38.

• Capital spending trends improved further, with the NRI for total capital spending rising to 38 from 33 in April, and its highest reading since early 2015.Expectations for the next three months also improved: the forward-looking NRI is 44, up from 36 in the April survey. Trends in information and communications technology capital spending are much stronger than for structures.

• All panelists expect the expansion in real gross domestic product (real GDP) to continue over the next 12 months. Eighty-seven percent of panelists expect real GDP growth of more than 2% in the coming four quarters, with a majority (68%) anticipating growth in the 2.1%-to-3.0% range. Seventeen percent expect GDP growth to be in the 3.1%-to-4.0% range, and 2% of panelists expect growth of 4% or more. The remaining 13% expect growth to be in the 0.1%-to-2.0% range over the coming four quarters.

Source: NABE

Sixty-eight percent of the business economists said they foresee sales growing over the next three months. And for a third straight quarter, a higher proportion of respondents reported rising sales at their companies. All the panelists expect the U.S. economy, as measured by the gross domestic product, to expand over the next 12 months.

Goods producers — a category that includes manufacturers, farmers and construction — are most optimistic, with 94 percent saying they expect sales to rise over the next three months.

Fifty-one percent of the economists said wages rose at their companies between April and June, and they expect pay to keep rising over the next three months. It was the first time since the NABE began analyzing such data in 1982 that it has reported such strong wage growth over two quarters. Forty-one percent of respondents said their companies expect to hire in the next three months.

“Labor market conditions are tight, with skilled labor shortages driving firms to raise pay, increase training, and consider additional automation,” Sara Rutledge, chair of the NABE’s Business Conditions Survey, said in a statement.

Overall, the respondents reported little impact so far from the Trump administration’s tariffs against China, the European Union, Canada and Mexico. A majority — 65 percent — said the trade disputes haven’t led their companies to change hiring, investing or pricing so far.

But among goods-producing companies — which are directly affected by the tariffs and the counter-tariffs by America’s trading partners — a majority said they had made one or more such changes. Twenty-six percent of the goods-producing companies said they had delayed investments, and 16 percent said they had raised prices.