1st Quarter NAM Survey: Softening Business

By April 21, 2008Economy

Results from the 1st Quarter NAM/Industry Week Manufacturing Index shows that
confidence among large manufacturers eroded (for a third consecutive quarter) in the first quarter of 2008 to the lowest level in five years, with sales expectations falling to their lowest level since the second quarter of 2001. For small manufacturers, the business outlook moderated as well in the first quarter of the year, but remained elevated compared to large survey respondents.

70 percent of small manufacturing companies who responded to a survey conducted by the National Association of Manufacturers (NAM) had a positive business outlook for their firm in the first quarter of 2008. This marks a 10 percent drop in confidence from the 80 percent of survey respondents who had a positive outlook in the fourth quarter of 2007. This was the biggest quarterly drop since the 11 percent decline in first quarter of 2001. Having declined five of the past eight quarters, the level of optimism in the first quarter of 2008 was at the lowest level since the second quarter of 2003.

After tumbling 17 percentage points in the third quarter of last year, and dropping another 4 percentage points in the fourth quarter, the percent of large manufacturers with a positive business outlook eroded another 2 percentage points to 57 percent in the first quarter of 2008, the lowest level since the first quarter of 2003.

Despite the moderating business outlook that had taken place over the past two years, the level of optimism for both large and small survey respondents remained higher in the first quarter of 2008 compared to the first quarter of 2001. This is consistent with survey responses indicating that most companies’ business environment is better than it was back in 2000-2001.

Asked how their current business environment compares to the 2000-2001 period, nearly two thirds (61 percent) of survey respondents answered that current conditions for their company are ‘better than 2000-2001,’ 17 percent responded that current conditions are ‘similar to 2000-2001’ and 22 percent responded that current conditions are ‘worse than 2000-2001.’

Asked if the U.S. economy would go through a recession in 2008, half (50 percent) of the survey respondents answered ‘yes,’ 17 percent answered ‘no’ and 33 percent answered ‘maybe.’

Survey results also show that more export-oriented companies are more optimistic. For firms that expect at least 25 percent of their company’s sales growth this year to come from exports, 81 percent reported a positive business outlook in the first quarter survey. However, just 60 percent of firms that do not export reported a positive business outlook.

Results from the first quarter survey also show that more export-oriented companies have more positive outlook with respect to sales, capital investment and employment.

Looking ahead 12-months, both large and small manufacturers expect their sales to continue to increase, but at slower rates than earlier in the expansion. Small firms expect their sales to increase by 3 percent, which is the same pace as the prior two quarters but slower than the expectation during the first half of last year.

Meanwhile, large firms expect their sales to increase by just 0.9 percent over the next 12 months. This is less than half of the pace of the fourth quarter, and the slowest sales expectation since the second quarter of 2001.

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