Businesses Report Slower Gain in Sales, Pricing, and Profit in Q4 2018

Wages rose and skilled labor harder to find in NABE survey

By Frank Nothaft Consumer Behavior, Mortgage Finance

The latest Business Conditions Survey conducted by the National Association for Business Economics (NABE) found that respondents generally remained confident that economic growth would continue through 2019, although growth projections were lower than the prior quarterly survey.  Two-thirds of business economists expect economic growth to exceed 2 percent over the next four quarters, down from October’s survey when 90 percent expected four-quarter growth would top that pace.  Consistent with the more tempered view on growth in the latest survey, respondents reported slower gains in sales, prices charged, and profit margins at their firms during the three months before the survey.  Finance, insurance, and real estate firms reported, on net, a decline in profit margins during the fourth quarter.

Skilled Labor Shortage More Widespread Now

The survey also provided confirmation of continuing labor market tightness.  Fifty-eight percent of respondents reported that wages and salaries were up during the fourth quarter of 2018.  This result represented the highest net percentage of firms reporting rising labor costs since the Business Conditions Survey began in 1982.  On net, 74 percent of firms expect wages and salaries to rise during the first quarter of 2019 as well.  Further, 53 percent of respondents reported shortages of skilled labor at their firms, the highest percentage since October 2000. (Figure 1)

High-Skilled Jobs are Hardest to Find

By industry, the upward pressure on labor costs and the skilled-labor shortage was particularly acute for firms in the goods-producing sector, which includes construction. At goods-producing firms, 89 percent reported rising wages and salaries during the final quarter of 2018, and the upward labor-cost pressure at goods producers was expected to continue in early 2019.  And the positions that were most difficult to fill were mid-skill and high-skill positions:  More than three-fourths of respondents at goods producers or at firms in the finance, insurance, or real estate sector reported high-skill jobs as challenging to fill. (Figure 2)

To address staffing challenges, respondents reported their companies took the following steps:

  • raised wages (48 percent)
  • trained internal staff for promotion (35 percent)
  • paid referral or hiring bonuses (25 percent)
  • invested in labor-saving processes (22 percent)
  • paid retention bonuses (18 percent)
  • lowered work requirements for open positions (9 percent)

(Note: The responses sum to more than 100 percent because some firms have used multiple steps to address difficulties in staffing.)

In sum, while business economists were generally optimistic for business conditions during 2019, the view was less rosy than a quarter ago.  And with slowing sales growth limiting price increases in the coming quarter, yet materials and labor costs expected to rise, the outlook includes continuing pressure on profit margins in the coming year.

Note: The NABE Business Conditions Survey included responses from 106 NABE members surveyed between December 17, 2018 and January 9, 2019, and was released January 28, 2019. A summary can be accessed at

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