“The National Association for Business Economics’ July 2010 Industry Survey confirms that the U.S. recovery continued through the second quarter, although at a slower pace than earlier in the year,” said William Strauss, Federal Reserve Bank of Chicago. “Industry demand increased for a fourth consecutive quarter, although at a slower pace. Price and cost pressures were contained, allowing profits to edge higher. The labor market continued to improve, with increases in current hiring and a rise in the percentage of firms planning to add workers over the next six months. Capital spending remained stable over the past year. Credit and debt issues in Europe will likely negatively impact just over a third of the surveyed firms over the next three months.”

Job creation trends continued to improve, with a second quarter of net positive payroll gains. The percentage of firms increasing payrolls increased to 31%—a dramatic increase versus a year ago when only 6% were seeing hiring gains. The percentage of firms cutting jobs continued to move lower—from 36% a year ago to 14% this July. The share of respondents expecting their firms to add employees over the coming six months rose to 39%, the highest level of hiring intentions since January 2008.

According to Haver Analytics (see chart), during the last ten years there has been an 83% correlation between the NABE employment index and the q/q change in nonfarm payrolls.

Profit margins expanded for a fourth consecutive quarter, but growth slowed to a crawl as the NRI slid to 4 in the July survey from 13 in April. The percentage of respondents reporting rising margins held steady at 25%, but the share citing declining margins jumped to 21% in July from 11% in April. One-fifth of firms raised prices last quarter, and only 6% reported cutting prices, compared with the nearly even split between increases and decreases reported in the first quarter. Fewer respondents than in April expect their firms to either raise or lower prices in the coming quarter.

Materials costs continued to rise. The percentage of respondents reporting rising prices outpaced that of respondents reporting price declines for a sixth consecutive quarter, although the percentage of firms was slightly lower than in the prior quarter. • Firms with foreign-based operations reported that sales growth from those operations weakened in the second quarter. The NRI declined to 11 in July from 25 in April. Just over half of the NABE Industry Survey panelists reported that at least some of their firms’ sales came from foreign-based operations during the second quarter.


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