prospects have brightened since the start of the year, according to a National Association for Business Economics survey conducted during July and issued on Monday, but companies face shortages of skilled employees and rising input costs.
"We saw a mix of responses," said Ken Simonson, chief economist at Associated General Contractors of America and an analyst for the survey. "The tone was definitely more positive than in the first quarter ... But it was not overwhelmingly upbeat, particularly in the goods-producing sector." The survey of 109 NABE members was conducted between June 18 and July 10 and looks forward to business prospects for the balance of this year.
It found the goods-producing sector, including agriculture, mining, construction and manufacturing, cut jobs for the fifth consecutive quarter during the second quarter and expected to reduce employment further. Nearly 90 percent of respondents thought the housing sector would keep shrinking, at least slightly, and were split almost evenly as to whether or not it would affect their own company.
"Housing is an important sector, but it's by no means dominant," Simonson said. "There's little spillover from housing to other sectors." Simonson also noted that profit margins pushed up slightly for the 16th consecutive quarter in the April-June second quarter, despite higher material costs and wage increases and difficulty raising selling prices.
The gains in profit margins were attributed to gains in productivity for 91 percent of the respondents, a trend which Simonson said is sustainable but not universal. "Obviously, companies that are supplying the home-building industry continue to see declines," he said.
But he noted the housing sector and the construction industry are distinctly separate, saying it's "boom times" for non-residential construction. The survey, said that business activity, hiring, and capital spending all picked up in the second quarter compared with the first quarter of 2007. But as business activity continues to expand as expected, the shortage of skilled labour will persist.
Demand for goods and services surged and prices stabilised during the second quarter, according to the survey.
In addition, capital spending was in line with the historical average, rising at around 33 percent of the firms and increases expected looking forward. Around two-thirds of respondents predicted that real GDP would grow at an annual rate between 2 percent and 3 percent in the second half of 2007. Fourteen percent anticipated greater than 3 percent growth, showing greater optimism than in the past two surveys, the group said.