The Federal Reserve Bank of Richmond recently announced that its financial decision-makers are expecting the U.S. economy to have less growth than initially expected. According to its report on June 28, nearly 40% of small businesses are anticipating less business spending due to tighter financing.
“Financial leaders of firms became decidedly more optimistic about the U.S. economy and their prospects without the fear that Congress would not agree on the debt ceiling,” Richmond Fed economist Sonya Ravindranath Waddell said. “However, the debt ceiling deal did not change the expectations of financial decision-makers for slower GDP growth in the next year. Small firms also seem to be experiencing a much more challenging environment concerning revenue growth and financing than large firms.”
The forecast revision comes after these small businesses anticipate tighter credit conditions leading to reduced corporate investment. The findings are from the CFO Survey, which is a project between the Fuqua School of Business at Duke University and the Federal Reserve Banks of Richmond and Atlanta that took place between May 24 and June 9. The survey not only showed that the economy is expected to contract, but growth projections for the DP over the next year reduced from 1.4% last quarter to a 1.0% average this quarter.
The report also stated that CFOs gave an average score of 54.8, which is comparable to the low level of optimism seen in the first quarter of the year. When they were asked to rate their confidence about the general U.S. economy on a scale from zero to 100 they gave a score of 57.4 after the debt ceiling resolution passed in Congress. Before the resolution, it was 51.5, which shows those who participated had higher optimism after the resolution was passed. The respondents' optimism about the financial prospects of their own companies increased, as well.
The CFO survey data showed that median employment estimates and expectations for pricing rise have moderated for all organizations. In the second quarter, worries about inflation, as well as labor availability, did decrease slightly.
The report had an outlook for "Large verse Small Firms," which said that more than 30% of small firms that consist of less than 500 employees said that access to financing, or the cost, has impeded investment and spending. In comparison, 20% of large firms feel this way. Nearly 40% of small firms said they anticipate lower investments and spending for the rest of the year, in comparison to about a quarter of large enterprises.
Small and large businesses alike said their spending would slow the exploration of new company prospects if costs and access to financing were restricted. Small businesses were more likely than large businesses to report that it would be challenging to replace or repair capital assets and refinance debt to the financing conditions. Small businesses also expected less revenue growth this year than large businesses, according to the report.
