The Best Sign Yet That The Recovery Is Strong

There are green lights as far as can be seen on the boulevard of the American economic recovery. The National Association of Business Economics says in its latest survey “Job creation in the quarter, as well as the outlook for the next six months as measured by the number of firms increasing headcount, is stronger than we’ve seen in the entire survey history dating back to 1982.”

The April survey showed that 63% of the 70 total respondents said company sales rose last quarter.  (They all did not answer every question.)  The number is really not as good as its seems. It is only up from 57% a year ago. Forty-five percent of 62 respondents said profits over the last three months have risen. The improvement, however, is dominated by 63% of service companies which said profits increased.

The other piece of good news from the report is that hiring was positive for 40% of respondents.

Behind the positive headline of the report were negative signs that more than offset better numbers. The first of these is that inflation is clearly hurting American companies. Thirty-five percent said overall costs  rose last quarter rose from the previous quarter. The figure was 67% in the goods-producing sector. Those prices will almost certainly be passed on to consumers or else margins at these companies will erode. Material costs for all companies rose 63% last quarter, but in the consumer-producing sector the number was 82%. Even employment numbers for the last quarter showed a potential for inflation. Forty percent said employment was rising at their firms last quarter. That figure was only 22% a year ago. More workers means more demand for consumer goods eventually. That will fuel inflation.

The NABE figures contradict themselves. It is hard argue that a recovery is strong when inflation and possibly compressed margins go with it. The data looks like other data that economists cite to prove that the next year will be better than the last three. The recession hurt sales. The inflation which has accompanied the early part of the recovery will hurt profits.

The NABE numbers may show a recent improvement, but they point to an end to the improvement soon.

Douglas A. McIntyre