Business Optimism Falls as Costs Rise, Manufacturing Output Contracts, Activity Index Posts Back-to-
Business Optimism Drops As Costs Rise
Fewer companies are reporting increasing sales, profits and wages as perceptions rise among business owners that the United States can't avoid falling into a recession, a business trade group reported.
Nearly half of the respondents surveyed by the National Association of Business Economics in July said a recession is more likely than not over the next 12 months, compared to 13% who held that view in the April survey, the group's Business Conditions Survey Chair Jan Hogrefe said in a statement on Monday.
“Rising materials and labor costs are squeezing profit margins at many firms,” said Hogrefe, chief economist at aerospace company Boeing. “The July survey shows more firms reporting declining profit margins than rising margins for the first time since the October 2020 survey.”
Nearly half of respondents reported rising sales in the second quarter of 2022, a drop of 14 percentage points from the share of respondents reporting increasing sales in April, according to the report. The share of respondents reporting climbing profits declined to 22% from the 26% in the April survey.
“A majority of surveyed firms still reports rising sales, but that share declined sharply from last quarter," Julia Coronado, founder and president of the National Association of Business Economics, said in the statement.
Respondents reported that increased cost pressures, higher interest rates, rising COVID-19 cases and supply chain disruptions were the biggest risks to their businesses.
Manufacturing Output Contracts
Another broad indicator of business and manufacturing activity in the United States, S&P Global’s U.S. Composite Purchasing Managers Index, contracted for the first time in about two years in July as a slowdown in service businesses outweighed modest growth in manufacturing.
The U.S. Composite PMI tumbled far more than expected to 47.5 this month from a final reading of 52.3 in June, according to S&P’s preliminary, or “flash” PMI report for the United States.
The decline signaled the steepest a loss of economic momentum across the nation since 2009 — outside of the early 2020 COVID-19 lockdowns — when the global economy was recovering from the Great Recession, the rating agency said in a statement.
The rate of decline was the sharpest since the onset of the pandemic in May 2020, as both manufacturers and service providers reported subdued demand, S&P reported.
“The preliminary PMI data for July point to a worrying deterioration in the economy,” Chief Business Economist Chris Williamson said in the statement. “Excluding pandemic lockdown months, output is falling at a rate not seen since 2009 amid the global financial crisis.”
Activity Index Posts Back-to-Back Drops
The Federal Reserve Bank of Chicago’s National Activity Index reported its first back-to-back monthly decline since the pandemic started in early 2020.
The index, which analyzes data from 85 indicators from production and income to personal consumption, housing and business sales, order and inventories, held at a negative 0.19 in June, unchanged from the May rate, according to a statement from the Chicago Fed.
Forty-one of the 85 indicators made positive contributions to the the index in June, while 44 made negative contributions. Forty-one indicators improved from May to June, while 42 indicators deteriorated and two were unchanged, according to the index, which was compiled using data available as of July 21.
The indicators measuring production, personal consumption and housing were negative, dragging down the overall index in June and outweighing slight positive contributions from sales, orders, inventories and employment-related measures. The contribution of the personal consumption and housing category was minus 0.06 in June, a slight uptick from the negative 0.08 recorded in May.