Economy, confidence perk up

Economy, confidence perk up

Economy, confidence perk up
KEY indicators used to measure the well-being of the U.S. economy continue to point to a slow but steady improvement in 2013.

Furthermore, a recent survey of food and agribusiness executives points to optimism in the sector.

Looking at the broader economy, The Conference Board reported May 30 that global growth is at a stable but slow 3%. The board cited weak markets as a predominant reason for such sluggish growth but noted clear upside potential for the U.S. and other developed economies in the second half of 2013.

In its measure of consumer confidence, often used as an indicator of Americans' willingness to part with their disposable income, the board reported a second consecutive month of improvement. The Consumer Confidence Index stood at 76.2 for May, up from 69.0 in April (1985 equals a confidence index of 100).

"Consumer confidence posted another gain last month and is now at a five-year high," said Lynn Franco, director of economic indicators at The Conference Board. "Consumers' assessment of current business and labor market conditions was more positive, and they were considerably more upbeat about future economic and job prospects."

Franco said back-to-back months of improving confidence might indicate that consumers think the economy is on the mend and poised to overcome the traction lost due to the fiscal cliff, payroll tax hike and the sequester.

The markets took a sharp tumble last Thursday in reaction to news that the Federal Reserve might begin tapering off its aggressive bond buying strategy. Comments from Fed chair Ben Bernanke gave a clear indication that "quantitative easing" may have run its course, and non-agricultural commodities fell sharply, along with the broader range of financial instruments.

 

Ag optimism

Prior to the Federal Open Markets Committee meeting, however, business leaders were feeling much more optimistic about the general state of business. A late-May survey conducted by GE Capital found that the chief financial officers of mid-sized U.S. food, beverage and agribusiness firms were confident about growth in the sector and were beginning to hire additional workers.

Of the CFOs surveyed, 64% predicted stable growth — a 7% increase from the previous survey conducted in the third quarter of 2012 — and 22% said they expect the industry to expand.

Even more telling, 40% of CFOs said they plan to increase capital expenditures in 2013, an increase of eight percentage points. Also, 83% said their firms hired new staff this year, up from 65%, and 60% indicated further plans to hire in the second half of the year.

"As CFOs seek to improve operational efficiency and maintain a high standard of food safety, we're seeing many middle-market companies take on improvement projects," said Chris Nay, senior managing director of food and beverage at GE Capital. "Lenders are well-positioned to provide business-building capital as food and beverage companies turn their attention back to investing in growth."

GE said 63% of CFOs expect revenues to increase this year compared with last year, and 69% expect profits to remain steady or increase.

 

CEO confidence

Outside the food and agriculture sector, executives who are used to some measure of pessimism in recent years appeared to be more confident.

According to The Conference Board, CEO confidence improved for a second straight quarter at a reading of 54 during the first quarter of 2013, up from 46 in the prior quarter (a measure greater than 50 indicates more positive than negative responses).

"CEO confidence improved again but still remains rather weak," Franco explained. "However, expectations are that conditions will modestly improve in most markets, with the exception of Europe, where the outlook for the next six months remains pessimistic."

As market reaction to last week's Federal Open Markets Committee meeting indicated, there are still plenty of pitfalls en route to an overall sense that the economy has successfully returned from the brink. The Federal Reserve Bank of Chicago reported that economic growth in its five-state region had, in fact, slowed in April, and CFOs surveyed by GE indicated that costs continue to increase.

So, while consumers and business leaders feel better about the state of affairs today than they did a year ago, the watch phrase for the economy remains "cautious optimism."

Volume:85 Issue:25

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