WASHINGTON (MNI) – The following are highlights from the October
2011 Industry Survey released Monday by the National Association for
Business Economics. It notes that the European crisis has negatively
impacted firms’ sales in 2011, and the negative impact appears likely to
continue over the next six months:

COMMENTS

“NABE’s October 2011 Industry Survey indicates expectations are
muted, but growth remains the base-case scenario,” said Shawn DuBravac,
chief economist for the Consumer Electronics Association. “The breadth
of industry sales growth narrowed in October, but there are still
significantly more firms reporting rising sales than declining sales.
Expectations for economic growth decelerated, but 97 percent of firms
still expect positive economic growth in 2011. The European crisis has
negatively impacted firms’ sales in 2011, but more firms are reporting
increased profitability in the quarter. The survey indicates companies
are still building for an improving future. The number of firms adding
employees dropped in October, but there are still more firms looking to
add jobs than to cut them. Capital spending also increased for a ninth
consecutive quarter. Despite a narrowing of positive indicators, the
majority of respondents remain cautiously confident.”

HIGHLIGHTS

– The breadth of industry sales growth narrowed in October.
Forty-nine percent of October survey respondents reported rising sales
versus 13% reporting falling sales in the third quarter. Only the
goodsproducing sector saw stronger breadth sales growth in the quarter,
while the service sector had the fewest firms with sales increases and
the most with declines.

– Expectations for economic growth in 2011 deteriorated sharply. A
full 84% of NABE panelists now expect real GDP to advance at a pace of
2% or less from the fourth quarter of 2010 to the fourth quarter of
2011, up from only 23% in July.

– The European debt crisis has had a negative effect on firms’
sales in 2011. One-fifth of the panel reported a decrease in sales
to-date in 2011 due to developments in Europe. The negative impact
appears likely to continue over the next six months, with nearly 30%
expecting that the crisis will lead to a decrease in sales through the
first quarter of 2012.

– Profit margins improved slightly over last quarter’s results.
More than one-fourth (27%) of survey respondents reported increased
profitability, versus 16% that reported declines. Sector performance is
mixed, with the foods and transportation, utilities, information and
communications (TUIC) sectors reporting improving profit prospects.

– Only one-quarter of respondents’ firms raised selling prices last
quarter, down from roughly one-third in the previous quarter. In
addition, fewer firms expect to raise prices in the coming quarter than
had expected to do so in the last four surveys.

– The shortages situation is improving as fewer firms reported
shortages. Skilled labor continues to be the largest shortage, driven
primarily by firms in the finance, insurance and real estate (FIRE), and
service sectors.

– Following two surveys in which record-high percentages of
respondents reported expanding employment, the number of firms adding
employees dropped from 42% to 30% of total respondents, while the number
that cut employment rose from single digits to 13%. Current levels of
net employment increases were consistent with survey answers from both
late 2010 and the 2004-2007 period.

– The employment outlook declined as the share of firms that expect
to add employees in the next half-year fell to the lowest level since
the two quarters immediately following the last recession (October 2009
and January 2010). In addition, the share of firms expecting to reduce
headcount through attrition or layoffs hit the highest level since the
July 2010 survey.

– Capital spending increased for a ninth consecutive quarter even
as the share of respondents reporting increases dropped to 33% from 41%.
The outlook for increased capital spending in the coming 12 months
deteriorated in the third quarter, although positive responses still
exceeded negative ones by a wide margin at 50% to 8%. Spending on both
computers and communications equipment and on structures are expected to
increase.

– After increasing in the previous four quarters, the percentage of
firms reporting rising material costs slipped to 33%. The expectations
for rising non-labor costs declined in the current survey. While there
are more firms expecting rising non-labor costs than declining non-labor
costs, the gap between these responses (11% of total responses) is the
lowest since July 2009.

– More than half of the NABE survey respondents indicated that some
portion of their firm’s sales came from foreign-based operations, with
17% indicating that more than half of their sales were from foreign
sources. Of those reporting sales from foreign operations, 46% indicated
that their sales increased in the last quarter, while 3% reported
decreased sales.

** Market News International Washington Bureau: 202-371-2121 **

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