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Forecasters upbeat about economy, job creation

Economists are more optimistic about growth this year as industries increasingly report better profits and add new jobs, though they still expect the recovery to remain slow, a survey shows.
/ Source: The Associated Press

Economists are more optimistic about prospects for growth this year as industries increasingly report better profits and add new jobs, though they still expect the recovery to remain slow, a new survey shows.

Seventy percent of those recently surveyed by The National Association for Business Economics believe real GDP will grow by more than 2 percent this year, up from 61 percent who said the same in January. Twenty-four percent are predicting real GDP will grow by more than 3 percent in 2010, up from 14 percent earlier this year.

"Industry demand moved higher compared to results in the January 2010 report, pointing to stronger growth in 2010," said William Strauss, a senior economist at the Federal Reserve Bank of Chicago. "After more than two years of job losses, job creation increased in the first quarter of 2010, suggesting a better outlook for hiring over the next six months."

The NABE forecast, set to be released Monday, shows fewer jobs are being shed, more are being created and more companies are making money.

The findings echoed results issued by Conference Board last week for its index of leading economic indicators. The figure jumped 1.4 percent in March, suggesting economic growth is likely to continue for the next three to six months. The growth was at its fastest pace in 10 months. Government data also showed that employers in March added 162,000 jobs, the most in three years.

The survey of 68 NABE members from private sector and industry trade associations takes into account first-quarter results and near-term outlook.

With industry demand on the rise for the third straight quarter, 37 percent of respondents plan to increase employment in the next six months, up from 29 percent in January. The net employment outlook index — job additions minus all cuts over the next six months — soared to 21 from 6 in the survey, with fewer respondents saying they planned to reduce staff through either attrition or layoffs. However, the bulk of employers — 46 percent, down from 48 percent — still plan no change to staffing levels.

By sector, the financial, insurance and real estate industries along with the service industry have had the most positive employment trends and continue to going forward. The jobs outlook in manufacturing has improved, respondents said, but is negative in the transportation, utilities, information and communications industries.

Most respondents — 73 percent — continue to say the year-old, $787 billion federal stimulus plan hasn't affected employment at their companies.

Wages and salaries also are improving. Respondents reporting higher pay more than doubled to 26 percent, while those reporting a decline in wages slipped to 6 percent from 7 percent in January. The net reading for wages and salaries — planned increases minus planned cuts — was 20, the highest reading since January 2008.

Higher salaries would bode well for the recovery, since consumer spending accounts for as much as 70 percent of U.S. economic activity.

Profit margins continued to grow for the third quarter in a row. The number of respondents reporting rising profits dipped slightly in April to 25 percent from 27 percent in January. But the rate at which profits fell slowed faster, with just 11 percent reporting declines compared with 16 percent in January.

Higher profit margins could indicate that companies might be in a better position to spend more money, which would accelerate the recovery. But the NABE survey showed capital spending plans are holding steady, with one-quarter of respondents planning to boost spending and 15 percent expecting to cut back, roughly in line with January's numbers. Expectations are positive for spending on computers and communications equipment, but remain negative for construction.

Companies may be holding back on spending as their ability to raise prices significantly remains weak. The NABE survey showed that 18 percent of firms cut prices last quarter instead of raising them, slightly more than in January. In addition, fewer firms expect to raise prices in the coming quarter than had expected to do so.

Materials costs also are on the upswing, with 39 percent reporting rising costs, up from 31 percent in January. And credit conditions continue to hamper businesses. Nearly half of those surveyed said credit conditions were hurting their operations, compared with 35 percent in January.

The survey was taken March 25 through April 10.