The National Association for Business Economics released its annual survey in January, with more grim news piled onto the already bleak economy and jobs outlooks. The NABE Industry Survey report presents the responses of 105 NABE members to a survey conducted between Dec. 17, 2008, and Jan. 8, 2009, on business conditions in their firm or industry, and reflects fourth-quarter 2008 results and the near-term outlook.

“NABE’s January 2009 Industry Survey depicts the worst business conditions since the survey began in 1982, confirming that the U.S. recession deepened in the fourth quarter of 2008,” said Sara Johnson, Managing Director of Global Macroeconomics for IHS Global Insight, an international economic forecasting company.  “The survey’s measure of demand fell to its lowest level in the history of the survey.

“Looking ahead to 2009, respondents grew more pessimistic about U.S. economic growth. Over half expect real GDP to fall by more than 1 percent this year, and only 3 percent project growth of over 1 percent. Falling profit margins outnumbered rising margins five-to-one among respondents’ firms – the worst reading since 1982. Job losses accelerated in the fourth quarter, and the employment outlook for the next six months has weakened further.

“With market prospects deteriorating, firms slammed the brakes on capital spending in the fourth quarter of 2008; the percentage of firms reducing capital expenditures (38%) was the highest in the history of the survey.”

NABE Survey Highlights

• Demand for goods and services increased at just 20 percent of respondents’ firms last quarter, the lowest percentage since the survey began in 1982. Demand fell at 47 percent of respondents’ firms, an all-time high. This confirms that the U.S. recession that began at the end of 2007 worsened significantly in the fourth quarter of 2008. Demand weakness was pervasive across sectors, but was especially pronounced in the goods-producing sector, where 79 percent of firms reported declining demand.
  
• Respondents continued to grow more pessimistic about the macroeconomic outlook. Seventy-eight percent of respondents expect U.S. real GDP to be lower in 2009 than in 2008.
  
• Rapidly deteriorating global market conditions are hammering business profits. For the fourth consecutive quarter, reports of falling profit margins (52% of respondents) outnumbered reports of rising margins (10%). This was the worst result since the spring of 1982.
  
• Job losses accelerated in the fourth quarter, producing the worst survey result in 17 years. Some 44 percent of firms cut payrolls, while only 14 percent added workers. Looking ahead, 39 percent of companies plan to reduce payrolls over the next six months, while 17 percent plan to increase employment. Only the services sector continues to create jobs.
  
• The percentage of respondents reporting capital spending growth moved lower for the fourth consecutive quarter. For the first time since 2003, more respondents reported lower capital spending than higher. Only 16 percent of respondents plan to raise capital spending over the next 12 months, with none of these expecting capital spending growth in excess of 10 percent. Forty-four percent of respondents expect capital spending to decline over the next year.
  
• For the first time since the economy was emerging from the last recession, the share of panelists who said material costs rose in the previous quarter was lower than the percentage of panelists who said materials costs fell. Eighty-five percent of respondents reported no shortages of major inputs. The share of respondents reporting skilled labor shortages dropped to 10 percent from 40 percent just six months ago.
  
• The fraction of respondents who said their firms raised prices last quarter dropped to just 12 percent – the lowest percentage of respondents since the end of 1998. For the second straight quarter, more respondents expect their prices to fall instead of rise over the next quarter.
  
• Tight credit market conditions continue to impair the performance of the economy. Fifty-two percent of respondents indicated that the tightening of credit conditions has moderately or severely affected their businesses, while 78 percent reported that credit conditions have adversely affected their customers.
  
• Of those who responded to a new question about inventories, most reported that their firms were reducing inventories, either in anticipation of weaker sales, or in an effort to cut costs and conserve cash, or both. Of those reporting rising inventories, most indicated that inventories rose due to weaker-than-expected demand.