The April 2017 NABE Business Conditions Survey report presents the responses of 97 NABE members to a survey on business conditions in their firms or industries conducted between March 21, 2017, and April 6, 2017, and reflects first quarter 2017 results and the near-term outlook.

COMMENTS: “The results of the most recent NABE Business Conditions Survey reflect relatively favorable conditions for firms during the first three months of this year,” said NABE President Stuart Mackintosh, CBE, executive director, Group of Thirty. “Profit margins improved with strength in prices charged, and sales continued to increase, although at a more moderate pace than the previous quarter. At the same time, materials cost pressures appear to be stabilizing. Panelists also maintain their more positive expectations for economic growth from the prior survey, with two-thirds of respondents still expecting GDP growth above 2% in 2017.”

“On balance, the panel remains largely neutral in response to recent policy developments, including potential changes to the Affordable Care Act,” noted Survey Chair Emily Kolinski Morris, CBE, chief economist, Ford Motor Company. “But we continue to see some divergence in responses from panelists representing firms across different sectors in our panel. 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.”

HIGHLIGHTS

• Sales retreated from their year-end surge. A similar share of respondents in NABE’s April 2017 Business Conditions Survey reports rising sales over the prior three months as the share that reported rising sales in the January 2017 survey. But the share reporting declining sales doubled, to 20% from 10%. The Net Rising Index (NRI)—the percentage of panelists reporting rising sales minus the percentage reporting falling sales—declined to 24 from 36 in January.

• Expectations for sales in the coming three months moderated, as the NRI declined four points to 44. Despite this moderation, respondents remain generally optimistic regarding sales, as the NRI for the next three months is still slightly above the readings registered in October and July of 2016. The share of panelists expecting sales growth over the next three months is larger than the share reporting gains over the past three months for all sectors.

• Respondents report some firming in prices charged, with the NRI rising to 19 after hovering near 10 for the previous four quarters. Consistent with the prior survey, about two-thirds of respondents (68%) indicate that prices have remained unchanged. The share of respondents reporting rising prices increased to 25%, while the share reporting falling prices decreased to 6%.

• Two-thirds of panelists expect inflation-adjusted gross domestic product (real GDP) growth to exceed 2%. This outlook is consistent with the consensus of the January survey. Just 1% of panelists expect no growth or a decline in real GDP over the next four quarters.

• The materials cost NRI was nearly unchanged after rising steadily over the past three quarters. NRIs for the goods-producing and transportation, utilities, information, and communications (TUIC) sectors rose, while those for the finance, insurance, real estate (FIRE) and services sectors declined. All sectors except TUIC posted positive NRIs in April.

• As in the January survey, about 40% of respondents report their firms raised wages in the past three months. The share of respondents reporting that wages and salaries had increased at their firms in the past three months declined just one percentage point from that in the January 2017 survey.

• Despite the moderation in sales growth, actual and expected profitability improved in the April survey after fairly weak results over the past two years. While the share of respondents reporting profit gains at their firms has remained roughly steady at just above 20% over the past four surveys, the share reporting a decline in profits has decreased from 23% to 17%. The result is the NRI rising to 6 in April from 1 in January. The NRI for expected profits over the next three months also continued to rise after a surge in January’s survey—to 21 from 16 in January and -1 in October.

• The NRI for employment in April is 16, unchanged from the January survey. This result reflects an increase in the percentage of respondents indicating that employment at their firms was unchanged (67%), with a corresponding decline in the percentage of panelists reporting both rising and falling employment. Just under one-quarter of respondents (24%) reports that employment had increased at their firms over the last three months.

• Panelists are slightly less upbeat regarding capital spending in April compared to January. However, spending on information and communications technology did improve over the past quarter. Current structures spending remains weak and expected structures spending declined.

• Panelists’ responses reflect mixed reactions to the potential for higher interest rates in 2017. A plurality of respondents (38%) cites the positive impact of interest-rate increases associated with improved economic conditions; a comparable share (36%) is neutral as to whether higher rates would have a net positive or negative impact. Responses across sectors diverge more noticeably. Higher interest costs are a greater concern for respondents in the goodsproducing sector (53%), while higher interest income and improved economic conditions are noted by 40% of respondents from FIRE sector firms.

• A slight majority of panelists reports neutral impacts from a strong dollar. Although a relatively small share of respondents (20%) cite negative impacts, the percentage citing negative impacts outweighs the share citing positive impacts by a ratio of 4:1. That ratio was driven largely by the goods-producing sector: a 47% plurality of respondents from that sector report negative impacts from a strong dollar. Negative responses outweigh positive ones in all four sectors.

• The April survey results show that large firms are slightly more likely to have made changes to hiring and investment decisions in the post-election period. In pre-election survey results, smaller firms were more likely to report delayed hiring and investment decisions due to policy-related uncertainty. However, the vast majority of all panelists continue to report no change in hiring or investment decisions due to policy considerations.

• Panelists are relatively sanguine about the impacts from changes to the Affordable Care Act (ACA), although the survey question on this issue elicited a significant share of “Don’t Know” responses. A plurality of respondents (49%) suggests there will be a neutral impact from changes in the ACA, and the sum of positive responses is greater than the sum of negative responses by a fairly large margin (23% versus 9%). Positive responses also outweigh negative responses in each individual sector, although the services sector accounts for the highest portion of negative responses—16%—including 5% of respondents reporting a significant negative impact