Expect a More Challenging Business Environment, Says Business Economists Group
“Sales are seen as growing, but at a slower pace, and profit margins are reported to be declining.”
The National Association of Business Economists issued its latest business conditions survey of its members. Their outlook suggests “a more challenging business environment as the economy slows,” said NABE President Ellen Zentner, who is also chief U.S. economist for Morgan Stanley. “Sales are seen as growing, but at a slower pace, and profit margins are reported to be declining.”
More of the responding economists reported falling sales at their companies in the last three months and fewer saw rising sales. The net rising index (NRI) — percentage of panelists reporting rising sales minus the percentage reporting falling sales — was 6, “down from a reading of 33 in the July survey, and the lowest reading since the April 2020 survey conducted at the onset of the COVID-19 pandemic,” the report said. “The forward-looking NRI fell to 25 from 38 in the July survey, indicating fewer respondents expect sales to rise in the next three months than previously.”
Other numbers were also discouraging: • The NRI for profit margins fell to -20, down 20 points from July and the second-lowest figure since the Covid-19 pandemic started. While 22% of panel economists expected higher profit margins in July, the portion was 10% in October. • Prices NRI went from 45 in July to 27 in October, “the lowest level since the January 2021 survey.” Although 49% saw rising prices at their companies in July, only 33% did in October. About 60% of panelists thought prices would remain the same in the next three months. • Materials NRI was 43 in July and 25 in October, “down 51 points from the record-high NRI of 76 in the July 2022 survey, and the lowest NRI for materials costs since January 2021.” • The wages NRI was 53 in October, compared to 47 in July. More than half (55%) of respondents saw wages rising. And for the first time in three years, more respondents’ firms had falling employment rather than increasing.
The biggest upside risk is higher interest rates that could add more financial difficulties for owners and investors.
The report stands at odds to reported large GDP growth in Q3 and greater optimism that had presented itself as a result.
If the NABE results show themselves predictive, there would be strong impacts on business revenues, spending, employment, and real estate space requirements might fall as well.