Less executives in corporate America are positive about the economy moving forward and according to the America Institute of CPAs’ Economic Outlook Survey, rising interest rates are a cause for some of the concern.
The results of the quarterly survey revealed that 69% of executives said they’re optimistic about the economy over the course of the next 12 months, but this is down five percentage points from the second quarter and 10 percentage points from the first. Even though expectations for revenue was up 4.3% and profits up 5%, optimism still slipped as the survey also cited tariffs as another concern.
“It’s unusual to see a decrease in U.S. economic optimism when key performance indicators such as profit and revenue are perceived to be on the rise,” said the AICPA’s Arleen Thomas. “On the one hand, business executives are encouraged by the impact of federal tax reform and reduced regulation at home, but there is some concern about trade wars, interest rate hikes and other factors that could contribute to a global economic slowdown.”
Related: Will Rising Interest Rates Lead to More Market Volatility?
With no signs of the economy slowing any time soon, it appears that a steady diet of rising rates is in order, according to Boston Federal Reserve President Eric Rosengren.
“Gradually increasing over the course of this next year makes sense,” Rosengren told CNBC in an interview. “If things work out well for the economy, and that’s what I expect and hope, then we’ll be in a situation where we need to have somewhat restrictive policy over time.”
With a monetary policy meeting slated for later this month, Rosengren also forecasts that the current federal funds rate will float between a range of 2.5% to 3%. After the two previous rate hikes earlier this year, the current federal funds rate stands at 2.
Backed by a revised GDP growth in the second quarter of 4.2%, the economy has grown at a pace not seen since the third quarter of 2014. In addition, the latest employment data reveals a robust job market amid the backdrop of an extended bull run in the capital markets despite private payrolls missing its expectations–companies added 163,000 jobs in August, which represents a tangible slowdown versus the 217,000 added in the previous month and below the average of 206,000 a month.
Additionally, the month of August revealed a steep decline in hiring by small businesses, but in spite of this, the labor market continues to thrive. Furthermore, this sentiment is paired with an unemployment rate that continues to be at historically low levels.
In conjunction with the jobs data, the Institute for Supply Management released a report that revealed a growth increase in U.S. service sector activity–a pace that was higher than expected in the month of August. According to the ISM, its non-manufacturing index jumped to 58.5 during the month of August–about three points higher than the previous month.
Related: Private Payrolls Less than Expected, Jobless Claims Fall
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