The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.
- BLS Handbook of Methods
- Bureau of Economic Analysis
- Bureau of Labor Statistics
- Congressional Budget Office
- Economic Data - FRED® II, St. Louis Fed
- Office of Management and Budget
- Statistics: Releases and Historical Data, Board of Governors
- U.S. Census Bureau Economic Programs
- White House Economic Statistics Briefing Room
February 01, 2010
Southeast businesses offer insights on capital spending plans
With last week's capital orders data giving signals of renewed growth in business fixed investment in equipment and software in the fourth quarter, the question turns to whether this growth will be sustained. In early January 2010, the Federal Reserve Bank of Atlanta reached out to our contacts in the Southeast through our Regional Economic Information Network as part of our monetary policy information-gathering efforts to inquire about businesses' capital spending plans. We received responses from 320 businesses across Alabama, Florida, Georgia, Mississippi, Louisiana, and Tennessee. (I want to note we were helped significantly in this effort by colleagues at the Kennesaw State University Econometric Center, who conduct a monthly PMI survey of manufacturers in the Southeast.)
As with our recent small business finance survey (discussed in this macroblog post), readers should be cautious about the results because of the tendency, for example, to sample established, relatively successful firms. That said, we still believe the results are instructive. Of note, 36 percent of respondents indicated that they planned to increase spending over the next 6–12 months relative to actual spending over the past 6–12 months. Another 42 percent said they would leave their spending at about the same level (unchanged), and 22 percent indicated that their spending would fall. The difference between those planning to increase spending and those planning to decrease spending equals a net positive of 14 percent. Across industries, construction firms were the group least likely to increase spending, while retailers were the most optimistic group. Our manufacturing contacts and the "other industries" group of firms (firms across a myriad of industries such as transportation, healthcare, and business services) expressed intentions similar to the overall response (see the chart).
For those who planned to increase spending on new plant and equipment, the most commonly given reasons (respondents could select more than one reason) were that they expected growth in sales to be high (37 percent of those respondents), or they needed to replace information technology equipment (37 percent of those respondents). Also, 61 percent of those planning to increase spending indicated that at least some of that spending reflects investment that had been postponed because of the recession. Not surprisingly, for those who did not plan to increase spending, the most commonly cited reasons were the expectation of low growth in sales (cited by 47 percent of those respondents) and heightened economic uncertainty (cited by 39 percent of those respondents).
Interestingly, cost and availability of external financing were among the least frequently cited reasons for either increasing or not increasing capital spending (cited by 9 percent and 15 percent of respondents, respectively). This theme is consistent with the findings of our recent small business survey, as well as the trend in the National Federation of Independent Business (NFIB) survey of small businesses. According to the NFIB, "finance" was reported as the number one small business problem by only 4 percent of respondents in December 2009. The number one single factor was poor sales.
The NFIB survey also found that while plans to increase capital spending by small firms rose modestly in December 2009 to a net 18 percent, they remained near historic low levels—in December 2007, the net percentage stood at 29 percent and 17 percent in December 2008. This performance suggests that our finding of a net 14 percent of firms planning to increase rather than decrease spending on plant and equipment should not be read too encouragingly.
So where does that leave things? Probably with more questions than answers. For instance, the fact that about two-thirds of the firms that are planning on increasing spending are doing so because they had postponed capital expenditures during the recession would be consistent with some bounce in capital spending by businesses following the most recent recession. But how sensitive are firms to changes in economic conditions? Currently, we hear a lot anecdotally that cash is a high priority on firms' balance sheets as a precaution against economic uncertainty. If sales were to increase more than expected, how fast would firms rethink their investment spending plans? The answers to these types of questions are important, and we are consequently planning to conduct a follow-up survey in due course. As always, we'll keep you posted.
By John Robertson, vice president in the Atlanta Fed's research department
TrackBack URL for this entry:
Listed below are links to blogs that reference Southeast businesses offer insights on capital spending plans:
- Unemployment Risk and Unions
- Cumulative U.S. Trade Deficits Resulting in Net Profits for the U.S. (and Net Losses for China)
- The Slump in Undocumented Immigration to the United States
- A Quick Pay Check: Wage Growth of Full-Time and Part-Time Workers
- Back to the '80s, Courtesy of the Wage Growth Tracker
- Introducing the Atlanta Fed's Taylor Rule Utility
- Payroll Employment Growth: Strong Enough?
- Forecasting Loan Losses for Stress Tests
- Men at Work: Are We Seeing a Turnaround in Male Labor Force Participation?
- What’s Moving the Market’s Views on the Path of Short-Term Rates?
- October 2016
- September 2016
- August 2016
- July 2016
- June 2016
- May 2016
- April 2016
- March 2016
- February 2016
- January 2016
- Business Cycles
- Business Inflation Expectations
- Capital and Investment
- Capital Markets
- Data Releases
- Economic conditions
- Economic Growth and Development
- Exchange Rates and the Dollar
- Fed Funds Futures
- Federal Debt and Deficits
- Federal Reserve and Monetary Policy
- Financial System
- Fiscal Policy
- Health Care
- Inflation Expectations
- Interest Rates
- Labor Markets
- Latin America/South America
- Monetary Policy
- Money Markets
- Real Estate
- Saving, Capital, and Investment
- Small Business
- Social Security
- This, That, and the Other
- Trade Deficit
- Wage Growth