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US business climate worst in 27 years

US firms are experiencing the worst business conditions in 27 years as the year-long recession worsens, a survey showed.

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 US 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 US 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% of respondents in the NABE survey reported a fall in demand for services and goods, which was an all-time high, while only 20% 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% 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% of respondents expected GDP to be lower than last year.

Real GDP was likely to fall by more than 1%, 52% of the respondents reckoned. In the last survey in October, only 38% 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% of firms said they planned to reduce payrolls over the next six months, while 17% 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% 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% for respondents reported rising wages and salaries, while 13% said compensation had declined. This was the highest number in five years. (Reuters)