Corporate Economists Report Slump in Demand

In its latest member survey of business conditions the National Association for Business Economics (NABE) found that both demand and profit growth slowed sharply in the fourth quarter, 2000. Based on responses from 102 NABE members who were polled during December/January regarding conditions in their firm and industry, the overall economy is still growing, but much more slowly than in the first half of 2000. The NABE Net Rising Index (percent of firms reporting rising demand minus percent reporting falling demand) dropped to 11 percent during the fourth quarter, 2000, the lowest reading for this key indicator since 1991.

The good news is that the large majority of respondents do not see a recession imminent: 84% still anticipate growth between 1 percent and 3 percent during the first half of 2001. The bad news is that not all sectors will experience positive growth. The goods producing sector is probably already in recession, having experienced the largest quarter-to-quarter decline in the Net Rising Index in the 18-year history of the NABE industry survey.

Other highlights from this snapshot of market conditions include the following:

• The profit squeeze at NABE firms during the second half of 2000 was the most intense since mid-1991.
• Price increases remained moderate, but skilled labor remains difficult to find.
• Capital spending growth remained positive in the fourth quarter.
• Employment dropped in the goods-producing sector but remains strong in the consulting sector.

In mid-January a separate survey of professional forecasters conducted by Blue Chip Economic Indicators found a very similar outlook. Economists believe we will avoid a recession this year, but continue to revise their forecasts downward. The current consensus forecast expects 2.6 percent growth this year. While this is still positive, the more significant point is that the January survey marks the sharpest downward revision in the outlook since Iraq's invasion of Kuwait in the summer of 1990. Randall Moore, Blue Chip's executive editor said "Its like a car going 60 miles an hour and then suddenly slowing to 20 miles an hour. You haven't crashed, but you really feel the deceleration."