Companies 'tread water' as sales lose momentum

By Martha C. White

Corporate America is?pumping the brakes?on any forward momentum in the economy, according to a quarterly survey of company economists released Monday.

Only 39 percent of the economists surveyed said sales have been rising faster than inflation at their companies, down from 60 percent three months ago.

"We're treading water,"?said Nayantara Hensel, chair of the National Association for Business Economics committee that conducted the survey. "But the treading of the water is almost, in a way, a self-fulfilling prophecy because that?s driving some of the worsening economic contions we see."

Corporations?do have the cash but?lack the confidence to invest in hiring new employees or capital spending in the face of flagging sales, said Bodhi Ganguli, an economist at Moody?s Analytics.

Economists noted the one bright spot: A lack of inflationary pressure kept the prices of raw materials and wages stable and helped maintain profit margins. Still, only 29 percent said they were seeing rising profit margins in the past three months, down from 40 percent three months ago. Unfortunately for workers, only 25 percent of respondents said wages and salaries have been rising over the past three months, down from 44 percent three months ago.

"There's this gloom of uncertainty all over the globe right now," Ganguli said.

American companies, especially those that do a sizable amount of international business or depend on exports, believe a worsening in the eurozone's economic troubles could drag down sales.?Businesses also are worried about a possible double-whammy of government and consumer spending contraction if Congress allows automatic spending cuts and tax rate hikes ? the so-called "fiscal cliff" ??to kick in at the beginning of next year. "The spending cuts and tax hikes would create a tremendous drag on the recovery," Ganguli said.

As a result of the uncertainty, more companies are battening down the hatches. Some 15 percent of survey respondents reported a drop in capital spending, compared with only 6 who said capital spending was falling in April. Looking ahead, the picture gets just a little better. Roughly half of businesses expect it to be flat over the next year, while 10 percent of respondents expect it to fall. ?That?s not bad, but it?s not great,? Hensel said.?

In general, corporations expect the economy to grow, but at a snail's pace.?In the current survey, 11 percent of respondents forecast GDP growth of 1 percent or less ? up from only 4 percent who had such a low expectation in April. Similarly, 40 percent of businesses now think GDP growth will be 2 percent or less, in contrast to 23 percent who thought so in April.?

Longer-term, though, Ganguli expressed a somewhat more positive outlook, citing some "fundamental strengths" in the economy that will keep it moving forward after a weaker third quarter. "We do expect a bounceback later in the year," he said. "The fourth quarter should see some improvement.??

The survey, which has been conducted quarterly for 30 years,?reflects?the view of a panel of 67 top economists, with 40 percent of those?representing?companies with more than 1,000 employees.?

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Source: http://economywatch.msnbc.msn.com/_news/2012/07/16/12727954-companies-treading-water-as-sales-flag-survey-finds?lite

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