U.S. business conditions strongest since 2014; says Morgan Stanley

U.S. business conditions are the strongest since the summer of 2014 as sentiment has recovered from a weak start to the year, signaling companies’ willingness to make capital expenditures, Morgan Stanley economists stated Friday.

More investment in equipment, however, might come at the expense of less hiring, they said.

The bank’s business conditions index rose 3 points to 68 in April, the highest since August 2014. The index is more than double its recent trough of 29, hit in February.

“Stronger credit conditions, capex plans and expectations for future activity were offset by weaker hiring and hiring plans and modest downtick in advance bookings,” Morgan Stanley’s economists said in a report.

The bank’s hiring plans index fell 13 points in April to 34, the lowest since a bottom hit in June 2009 during the recession, while its capex plans index rose 5 points to 58, the highest since July 2015.

“If this signals the beginning of a sustained rebalancing, it would be a positive signal for a potential recovery in productivity,” they wrote.

Stronger productivity is seen as critical for overall economic growth.

Productivity growth has fallen steadily since the third quarter of 2009, when it reached 9.5 percent a year after the global credit crunch. In March, it was revised to -2.2 percent for the fourth quarter of 2015.

Economists at the New York Federal Reserve said on Friday they estimated the potential U.S. growth rate is currently about 1.75 percent.

In the 1980s to 1990s, potential U.S. growth was running modestly above 3 percent. Actual Gross Domestic Product readings ran at, above or below that potential during those two decades.

Source: Reuters