Economists say recovery continues, but pace slows

[July 19, 2010]  NEW YORK (AP) -- Economists say the U.S. recovery continued during the second quarter of this year with more businesses hiring workers and fewer cutting jobs, but the pace of growth has slowed, a new survey shows.

The National Association for Business Economics said its latest survey, released Monday, found 31 percent of businesses added workers between April and June, the highest level in three years. And 39 percent of those surveyed say they expect to hire more workers over the next six months -- the most since January 2008. Manufacturers reported the strongest increase in demand and profitability. Finance, insurance and real estate sectors saw the slowest growth.

The number of respondents who think real gross domestic product (GDP) will expand by more than 3 percent this year slid to 20 percent from the 24 percent who expected that rate of growth in April. But sixty-seven percent of respondents still believe the economy will expand by more than 2 percent in 2010.

"NABE's July 2010 Industry Survey confirms that the U.S. recovery continued through the second quarter, although at a slower pace than earlier in the year," William Strauss, of the Federal Reserve Bank of Chicago, said in a statement. "Industry demand increased for a fourth consecutive quarter, although at a slower pace. Price and cost pressures were contained, allowing profits to edge higher. Credit and debt issues in Europe will likely negatively impact just over a third of the surveyed firms over the next three months."

The number of companies reporting layoffs and job cuts through attrition is down by half from a year ago and about steady with the first quarter of this year, NABE found. Meanwhile, the number of businesses hiring jumped to 31 percent from 6 percent at the same time last year, and is up from 22 percent of those surveyed at the end of the first quarter. Goods-producing companies are doing most of the hiring, with only the services sector continuing to anticipate layoffs, the survey said.

The service sector remains a victim of weak consumer confidence. A volatile stock market, 9.5 percent unemployment rate, lackluster wage gains and a stalled housing market caused shoppers to clamp down on their spending in May and June. An economic report released Friday showed that consumer confidence fell in July to its lowest point in nearly a year.

Of the 84 NABE members from private sector and industry trade associations that responded to the latest survey, 52 percent said demand increased in the second quarter. Thirty-eight percent said it remained steady. Companies that raised prices outnumbered companies that cut them by three to one, which helped profit margins edge higher overall. However, that growth "slowed to a crawl," as materials costs continued to rise.

While a quarter of those surveyed said their profit margins grew, 21 percent said margins shrank -- versus 11 percent reporting declining margins in the first quarter. Companies with overseas-based operations said sales growth abroad weakened in the second quarter.

Looking ahead, most of the economists say the eurozone's debt crisis will have little or no effect on their business. However, more than a third of those surveyed think Europe's credit woes, austerity measures and the stronger dollar versus the euro will moderately hurt growth.

Spending on building is expected to decline, but nearly half of companies say they plan to spend more money on computers and communications equipment. That jibes with evidence from recent earnings reports that show large corporations are buying more computers. Chip maker Intel Corp. reported last week that companies are feeling more confident about freeing up their technology budgets and are starting to upgrade their workers' PCs.

The NABE survey was taken between June 11 and 29.

[Associated Press; By MARLEY SEAMAN]

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