January 26, 2009 / 5:49 AM / 11 years ago

U.S. business climate worst in 27 years

WASHINGTON (Reuters) - U.S. firms are experiencing the worst business conditions in 27 years as the year-long recession worsens, a survey showed on Monday.

A woman shops at a Walmart store on "Black Friday" in Oakland, California, November 28, 2008. REUTERS/Kimberly White

The National Association of Business Economics’ (NABE) quarterly industry poll found that the economic slump worsened in the fourth quarter and the majority of respondents expected gross domestic product to contract at a faster pace in 2009.

The U.S. economy tipped into recession in December 2007 and there are worries the downturn, triggered by the domestic housing market crash, could be the worst since World War Two.

“The NABE’s industry survey depicts the worst business conditions since the survey began in 1982, confirming the U.S. recession deepened in the fourth quarter of 2008,” said spokeswoman Sara Johnson.

The survey was carried out between December 17 and January 8, covering 105 NABE members.

The housing market collapse and the resulting global credit crisis have eroded household wealth, causing sharp cut backs in spending and severely depressing demand.

About 47 percent of respondents in the NABE survey reported a fall in demand for services and goods, which was an all-time high, while only 20 percent saw an increase. This was the lowest percentage since the survey started in 1982.

Sluggish demand was more pronounced in the goods-producing sector, where 79 percent of the firms reported falling demand.

“The survey’s measure of demand fell to its lowest level in the history of the survey,” said Johnson.

Falling demand left most firms pessimistic about the economic outlook for 2009, the survey found. About 78 percent of respondents expected GDP to be lower than last year.

Real GDP was likely to fall by more than 1 percent, 52 percent of the respondents reckoned. In the last survey in October, only 38 percent of respondents anticipated a decline.

Slack demand and lack of credit are forcing firms to cut capital spending and axe jobs, according to the survey. About 39 percent of firms said they planned to reduce payrolls over the next six months, while 17 percent expected to hire people.

The survey found that labor market conditions deteriorated sharply in late 2008, confirming the government’s payrolls report for December which showed 1.9 million jobs were lost in the last four months of the year.

The NABE said job losses were expected to continue in the first half of 2009, with most of the layoffs seen in sectors such as good-producing, finance, real estate, transport, utilities and communications.

Given the harsh economic climate, more firms are resorting to price cuts to lure buyers, with only 12 percent saying they raised prices in the last quarter. This was the lowest since the end of 1998 and could likely heighten fears of deflation.

Wage pressures are also muted. About 14 percent for respondents reported rising wages and salaries, while 13 percent said compensation had declined. This was the highest number in five years.

Editing by Chizu Nomiyama

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