US companies are more optimistic about the economy and their own capital spending plans than three months ago, according to a quarterly survey by the National Association for Business Econ-omics (NABE).
The economy will grow at an annual rate of 2 percent to 4 percent in the second half, according to the majority of those surveyed by the Washington-based group. The recovery is looking healthier than in April, 38 percent said, and the survey found the first signs of rising capital spending since 2000. Companies predicting job cuts still outnumbered those planning to hire.
"The economy continues to display the split personality of the last three years," said Tim O'Neill, NABE president and chief economist at Bank of Montreal. The association, which Federal Reserve chairman Alan Greenspan headed in 1969 to 1970, started its survey in 1982.
The results paralleled findings of surveys by Bloomberg News and Blue Chip Economic Indicators. Economists increasingly are arguing that the end of the war in Iraq, the lowest interest rates in 45 years and the Bush administration's US$330 billion tax cut will help spur the economy in the next six months.
In a Bloomberg News poll conducted from June 25 to July 2, the median forecast of 60 economists was for GDP to expand at a 3.5 percent annual rate in the third quarter and 3.7 percent in the fourth. The Blue Chip survey of 53 economists last month found the same average forecast. The economy grew at a 1.4 percent clip in the first three months this year.
In the NABE survey of 123 members at manufacturing, transportation, utility, communications, financial and service companies between June 17 and July 1, a higher number of respondents reported increased demand and falling costs than three months before.
Forty-three percent reported rising demand in the second quarter, compared with 16 percent citing declines and 42 percent calling it unchanged. Finance and service industries led the gains, while transportation, utilities and communications reported losses. In the April survey, 33 percent said demand was rising while 26 percent reported declines.
Companies said they aren't likely to raise prices soon, which would keep a damper on inflation. In the next three months, 22 percent said they planned to raise prices on goods and services, down from 27 percent in the April survey. Sixteen percent said they planned to cut prices, up from 11 percent.
Financial services concerns posted the highest readings of demand and reported the strongest investment plans, pushing the survey's gauge of capital spending into positive territory for the first time in 10 quarters, since the fourth quarter of 2000.
Of all companies surveyed, 44 percent said they planned to boost capital spending over the next 12 months, compared with 17 percent forecasting declines.
Raw materials costs are rising at 28 percent of companies, the survey found, and falling at 15 percent. In April, 10 percent reported declining costs. An index of wages and salaries fell to the lowest in the history of the survey. The index fell to 3 in the latest poll, indicating that the percentage planning raises exceeded the share projecting cuts by 3 points. In April, the index was at 19.
The responses indicated that unemployment may continue to rise. Of companies surveyed, 29 percent said employment is falling, compared with 24 percent in April. Those reporting rising employment increased to 13 percent from 9 percent.