Tuesday, April 24, 2007

Business Economists More Pessimistic

From the WSJ:

The National Association for Business Economics industry demand index fell 20 points during the first quarter to 20, indicating much softer demand growth versus previous months.

The quarterly index, based on a survey of 107 NABE members about conditions at their firms or industries, is calculated by subtracting the percentage of respondents reporting declines from those reporting increases.

The industry demand index has posted a quarterly loss of 20 points or more only six times in the survey's 25-year history, NABE said, the last time being the first quarter of 2003.

"Nearly every indicator in the April NABE Industry Survey showed slower momentum in the first quarter than previously, with very cautious expectations for the near future," said Ken Simonson, chief economist of Associated General Contractors of America, who compiled the analysis of the latest survey for NABE.

Employment growth during the first quarter "sagged," according to NABE, with only 23% of firms adding to payrolls, a three-year low.

A few points, in no particular order of importance.

1.) This survey is only of 107 members. That's a small sample size. While my guess is these firms are larger and therefore have a disproportionate impact on the market, it's still a small size.

2.) That being said, the index has been around for a long time which gives us some benchmarking numbers to look at.

3.) Employment strength, low unemployment and increasing disposable incomes are a primary driving force of the US economy right now. However, this report says employment "sagged". That is not a good sign going forward. Remember the following chart, which shows employment conditions change rapidly right before and during a recession.

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