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By Matthew Quinn
A recent survey of business economists showed the economy making strong progress on several fronts between July and September.
More respondents to the National Association of Business Economists industry survey reported a rise in capital spending over the prior quarter than a decrease. Expectations for future capital spending improved for the fourth straight quarter.
"Capital spending was positive for the first time in a year," said William Strauss, a senior economist at the Federal Reserve Bank of Chicago. "Improving credit conditions might be part of the explanation, with respondents indicating that credit remains tight but less so than earlier in the year."
The 78 respondents to the survey unanimously agreed that real gross domestic product will expand in 2010. Nearly three-quarters (73 percent) predict the economy will grow between 1 percent and 3 percent next year.
Industry demand increased during the third quarter for the first time in five quarters. The goods-producing, finance, insurance, and real estate; and services sectors all saw growth in the unit volume of demand. The transportation, utilities, information, and communications sector was the only broad industry group to post a decline.
Profit margins widened for the first time in seven quarters, albeit at a modest pace. While goods-producing industries continued to experience compression in profit margins, the other three broad industry groups all recorded gains.
Businesses exhibited some pricing power during the quarter, as more companies reported increasing prices in the third quarter than cutting them. The share of respondents expecting price increases in the next three months exceeded the share expecting cuts by 15 percentage points, a margin not seen since July 2008.
Job losses appear to be slowing with the percentage of firms cutting payrolls falling to 31 percent from 36 percent. The percentage of firms adding jobs doubled from an all-time low of 6 percent in July to 12 percent in October. Respondents expecting their firms to add employees over the next six months exceeded the number expecting job cuts for the first time since the recession began.
Materials costs appear to be increasing with the percentage of respondents noting rising prices slightly outpacing those reporting declines. Labor costs remain extremely subdued, with only 9 percent of businesses reporting rising compensation.
The majority of respondents indicated a reduction in inventories, but the percentage declined from the previous two surveys. Forty-six percent of businesses reported that inventories were reduced during the third quarter, with many them indicating the move was made in order to cut costs and conserve cash. At the same time, 18 percent of firms reported building inventories in anticipation of stronger sales.
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