WASHINGTON — Most businesses do not expect a significant impact to profitability or capital expenditures if the Federal Reserve continues to reduce its monetary policy accommodation over the next six months as expected, a National Association for Business Economics survey released Monday shows.
The survey shows that 70% of respondents expect no impact from the central bank's action on firm profitability, while 94% expect no effect on capital expenditure plans, according to the quarterly NABE Industry Survey. Thirteen percent expect a positive effect on firm profitability from potential upcoming action, while 17% anticipate that any effect would be negative.
"On net, survey respondents are more optimistic in their economic outlook and, regardless of any changes in monetary policy, expect their firms' performance in 2014 will be superior to that in 2013," NABE President Jack Kleinhenz said in a statement.
But the response varied significantly by sector. Respondents from the goods-producing sector, accounting for approximately 20% of respondents, were unanimous in their view that there would be no effect from a potential change in Fed policy, the survey said. Meanwhile, 40% of those respondents in the finance sector expect "there will be a negative effect on firm profitability."
The Federal Reserve's policymaking Federal Open Market Committee meets Jan. 28-29 and is widely expected to announce another $10 billion reduction in the amount of Treasuries and agency mortgage-backed securities it buys each month.
Overall, industry panelists, surveyed between Dec. 19 and Jan. 6, reported strengthening sales growth in the fourth quarter, with 63% seeing rising sales in the quarter. That's the largest share in the survey over the past year and up from 42% in the third quarter. Only 9% of panelists reported falling sales, down from 12% in the October survey.
"The outlook for 2014 is strengthening," said Kleinhenz, principal and chief economist at Kleinhenz and Associates.
Results from survey "suggest that economic growth accelerated to a moderate pace during the fourth quarter of 2013 from its modest pace the previous quarter," he said.
The majority of the 64 NABE members surveyed expect real GDP growth of more than 2% in 2014. Sixty-nine percent expect 2.1% to 3% GDP growth over the next four quarters, while 6% expect GDP to grow more than 3%, both of which are "largely similar to those reported in the previous survey," Kleinhenz said.
Profit margins in the fourth quarter were also on the rise, the survey showed. Nine out of ten respondents said profits were increasing or holding steady in the fourth quarter, compared to 81% reporting those favorable conditions in the third quarter. The percentage of respondents reporting falling profit margins decreased to 8%, from 19% in the October survey.
Prices fell in fourth quarter, with just one-fifth reported rising prices, down from 25% in October. However, this deceleration is consistent with October survey, which showed the number of firms expecting to raise prices in the fourth quarter was just 20%. Seventy-seven percent reported no changes in overall price levels.
This is likely to change in the first quarter of 2014. "More than 40% of respondents expect their firms to raise selling prices in the coming quarter - the highest percentage in more than a year," Kleinhenz said.
But higher profit margins and more sales aren't translating to job growth, the survey shows. "Employment growth remained weak, with a large percentage of panelists citing a continuing shortage of skilled candidates," he said.
Firms reporting falling employment rose to 17% in the fourth quarter, up from 12% in the third quarter. The share of firms hiring held steady at 27%, while the share reporting no change fell to 56% from 62% in the October survey.
Most of the weakness came from the lack of employment growth in the transportation, utilities, information and communications sector, which offset growth in the financial and service sectors, while the goods-producing sector reportedly stayed neutral.
"The percentage of survey panelists who expect their firms to add workers or increase overall capital spending is virtually unchanged from that reported in the October 2013 survey," Kleinhenz said.
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