NEWS ANALYSIS — The following is the latest in series of news analysis articles taking a closer look at some of the most important economic questions facing businesses today.
How optimistic are you about the prospects for the US economy during the coming year? While many of the most recent economic indicators are show positive signs — including the latest unemployment statistics — US business leaders still lagged behind most of the other leading countries.
US business leaders were the sixth most optimistic in terms of the economic possibilities for 2015, according to a new report issued at the end of last month.
‘We’re Number 6! We’re Number 6!’
The country with the most economic optimism was India, followed by Ireland, Australia and the United Kingdom. Those were the findings reported in the latest Grant Thornton International Business Report, which is based on a survey of of more than 2,500 business leaders in 34 countries.
Of the US business leaders surveyed during the Q4 of last year, 59% were highly optimistic about the country’s economic growth, a 10% decrease from the previous quarter (69%) but a 23% increase from Q4 2013 (36%).
Globally, economic optimism dropped from 43% in Q3 2014 to 35% in Q4 2014, according to the report.
The IBR’s report of economic optimism among US business leaders was consistent with findings from the group’s survey of chief financial officers, which was conducted last fall. That survey found that nearly half of CFOs (47%) expected the US economy to improve during the next six months, compared to only 9% who expected it to get worse.
‘A Mixed Bag’
Stephen Chipman, senior vice chair at Grant Thornton, said the findings were a mixed bag and indicated that many US business leaders are still in the wind about the nation’s long-term economic future — especially when compared to business leaders in other countries.
“Business confidence in 2014 climbed to levels not seen since before the financial crisis, and executives remained largely positive about their expansion prospects,” Chipman said. “However, the prevailing uncertainty is forcing businesses to delay decisions about investment in the future growth of their operations. The dip in optimism in the past three months suggests that businesses around the globe could see volatility on the horizon in the new year.”
Record Jobs Growth
Despite this, many businesses in the US have gone on something of a hiring spree — or at least have thawed the kinds of hiring freezes and reversed the downsizing that has been so prevalent since the beginning of the Great Recession.
In January, employers added 257,000 new jobs. That comes in the wake of 329,000 new jobs being added in December, and a remarkable 423,000 new jobs in November.
The November through January job growth — which was the best three month stretch of hiring since 1997 — took many economists by surprise.
“The labor market was about the last thing to recover from the Great Recession, and in the last six months it has picked up steam,” said Bill Hampel, chief economist at the Credit Union National Association. “The benefits for the middle class are now solidifying.”
Wages are also rising. The average hourly wage nationwide rose 12 cents to $24.75 in January, an increase of 0.5% and the biggest jump since 2008. Hourly pay rose 2.2% in the past year, well above the national 0.8% inflation rate.
WWTFD – ‘What Will the Fed Do?’
But the big question on everybody’s minds is whether or not these rosy economic numbers will finally cause the Federal Reserve to raise its short-term interest rates, which have been at historic lows since the economy bottomed out at the end of 2008.
The Fed will probably raise rates by the beginning of this summer, said Paul Alsworth, chief US Economist at Capital Economics.
“Employment growth is clearly on fire, and it is beginning to put upward pressure on wage growth,” Ashworth wrote recently in a research note. “The Fed can’t wait much longer in that environment, particularly not when interest rates are starting at near zero.”
‘Wait and See’ Attitude
And even though hiring has increased, not all areas of the economy are doing as well. Consumer spending and retail sales have continue to lag behind — despite the recent drop in gas prices.
In overall economic growth slowed to 2.6% in Q4 2014, compared to 5% in Q3 2014.
Gus Faucher, an economist at PNC Financial Services Group, said he was still not ready to buy in to the idea that the US economy has finally risen from the ashes.
“I do want to wait a few more months to say definitively, ‘This is it,’ ” Faucher said.