WASHINGTON (MNI) – The following are highlights from the August
2011 Industry Survey released Monday by the National Association for
Business Economics. It notes that monetary policy is “about right.”

The NABE August 2011 Economic Policy Survey presents the consensus
of a panel of 250 members of the National Association for Business
Economics. Conducted semiannually, this survey was taken between July 19
and August 2, 2011.

Chad Moutray, National Association of Manufacturers (Chair); Robert
Fry, DuPont; Lynn Reaser, Point Loma Nazarene University; Emily Sanchez,
American Chemistry Council; and Robert Yerex, Salient Analytics,
conducted the analysis for this report. Survey responses were tabulated
by Point Loma Nazarene University.

The National Association for Business Economics recently surveyed
its members on a number of policy issues. Please note that these
responses were given in the two weeks prior to the passage of compromise
legislation to raise the federal debt ceiling. As such, deficit
reduction was a central point of conversation, with viewpoints on both
sides. Survey respondents split almost evenly on whether current fiscal
policy at the time the survey was conducted was too stimulative, too
restrictive, or just about right. At the same time, about half of survey
respondents indicated they would prefer fiscal policy to be more
restrictive over the next two years, while a large majority said it
expects fiscal policy to be more restrictive.

Most panelists believe that Congress should attempt to reduce the
federal budget deficit through a combination of spending cuts and tax
increases. More than half (56.1%) favor reducing the deficit only or
mostly through spending cuts rather than only or mostly through tax
increases (6.8%). The remaining 37.1% favor equal parts spending cuts
and tax increases.

Nearly 40 percent of survey respondents believe that containing
health care costs in Medicare and Medicaid is likely to be the most
successful aspect of a deficit-reduction plan. A comprehensive tax
reform plan that raises slightly more revenue than the current tax
system also received significant support, cited by a quarter of the
survey panel.

A slight majority of panelists thinks current monetary policy is
“about right.” Still, a significant minority believes it is too
stimulative. Note that these results were taken before the Federal
Reserve Board announced its intentions to keep interest rates low
through mid-2013. The panel was evenly split as to whether it would
prefer monetary policy to remain unchanged or to be more restrictive
over the next 12 months. Most panelists expect short-term interest rates
to rise less than half a percentage point over the next 12 months.

In response to a series of miscellaneous policy questions, NABE
panelists expressed support for free trade agreements with Colombia,
Panama, and South Korea, and opposition to the National Labor Relations
Board’s recent complaint against Boeing regarding the location of a new
factory in South Carolina.

Fiscal Policy and Deficit Reduction:

This survey was administered in the two weeks leading up to August
2, the day that compromise legislation to raise the debt ceiling was
passed by the U.S. Senate and signed by the president. Given that much
of the political and media discussion during that time centered on
deficit-reduction measures, it is not surprising that survey responses
tended to focus on the need for deficit reduction. Indeed, nearly half
of the respondents indicated that they would prefer fiscal policy to be
more restrictive over the next two years, while over 70 percent expected
that it will be. Nonetheless, it is notable that a fair share of NABE
members would prefer to see more stimulative government fiscal policy,
perhaps reflecting concern about weaknesses in the overall economic
environment. Nearly one-third of NABE members taking this survey, for
instance, felt that current fiscal policy was too restrictive, with
nearly 37 percent preferring more stimulative fiscal policy over the
next two years.

While nearly 32 percent of NABE members felt that current elevated
deficit levels were primarily a spending problem, the majority of
respondents felt that the deficits were the result of too much spending,
not enough tax collections, and stalled economic growth. That view
translated into a split between those panelists who felt that spending
alone could solve the deficit dilemma and those who did not, with most
survey respondents suggesting a combination of higher taxes and reduced
spending. However, the NABE panel tilted more in the direction of
spending reduction. Of those survey respondents who wanted a deficit
reduction package with both spending cuts and tax increases, 44 percent
preferred a package with more spending cuts, while 37 percent felt that
deficit reduction could be best achieved with equal parts spending cuts
and tax increases. Less than 6 percent of survey participants favored
more tax increases rather than spending cuts.

While a majority of survey respondents indicated that the current
monetary policy was About Right, over a third felt it was “Too
Stimulative.” A much smaller share of just less than 6% felt that
current monetary policy was “Too Restrictive.” The remaining 4.1% did
not know or expressed no opinion.

When it comes to future monetary policy, respondents were nearly
equally divided between expectations of it being “Unchanged,” and “More
Restrictive” (about 42% each), with another share of nearly 15%
expecting future monetary policy to be “More Stimulative.” There was a
wide range of opinion as to where short-term interest rates will go over
the next 12 months, including 10% of panelists who expressed uncertainty
about the amount of any increase. Still, the median expectation was
for an increase of 25 basis points or less.

—

Panelists also considered the risks associated with the general
level of prices. The most frequently cited scenario (by 35.8%) was that
there is neither risk of inflation, or deflation. At the same time,
almost a third of respondents expect inflation to be a risk.

Finally, in a vote of confidence for the Federal Reserve’s
quantitative easing programs, 43% of respondents said such programs had
been effective, while 32.5% said they were not, with the remainder
unsure.

European Debt Situation:

Many of the NABE economists surveyed believe that debt
restructuring will play an important role in resolving the debt problems
of not only Greece, but Portugal, Spain, and Italy as well. Creditors
could experience losses through a reduction in principal payments,
smaller coupons (interest payments), or longer maturities. By and large,
the economists who participated in this survey believe such
restructuring will ultimately account for about 50% of the Greek
solution, 46% of the Portuguese solution, 40% of the Spanish solution,
and 38% of the Italian answer. Deficit reduction and loans from the
European Union, the European Central Bank (ECB), and the International
Monetary Fund (IMF) will be tapped as other channels to deal with the
debt problems of Southern Europe.

In terms of who should bear the primary burden for addressing
Europe’s sovereign debt issues, almost half of the NABE economists
surveyed (46%) believe that the individual countries should carry the
primary cost. The remainder of the cost should be borne by various
private creditors, other European countries, the ECB, and the IMF.

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

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