Business leaders optimistic, watchful on interest rates

The Connecticut Business & Industry Association, the state”™s largest business organization, said respondents to a recent economic survey have an optimistic, yet watchful, outlook for the near future with business leaders anticipating an interest-rate hike by the end of the year.

“The 2015 CBIA/Farmington Bank 3rd Quarter Economic and Credit Availability Survey” found more than 50 percent of business leaders expect an increase in interest rates by June 2016 and that 40 percent would see a somewhat negative impact on their firms if the Federal Reserve Bank raises rates either later this year or next.

“It is pretty much inevitable,” said Pete Gioia, an economist and vice president of the CBIA.

Pete Gioia, economist and vice president of the CBIA.

“I don”™t think they will take any action that is stronger than one-quarter of 1 percent,” he said. “They want to make a move, see what the reaction is, see what the job numbers are, take a deep breath and then decide if they will do a another quarter-point increase. Eventually, which could be a matter of years, they would like to get up to somewhere around 2.5 to 3 points from right now, but I don”™t think that is anything that is happening in any hurry.”

Gioia said it is becoming more apparent the Federal Reserve would like to raise the rate in December, but with recent international incidents and continued concern over China an increase may not happen as soon as he expects.

“If they see any downward pressure on consumer price index, which is possible if China continues or accelerates its slow down, and if oil slows down, or if they see part-time and discouraged workers not entering full-time work, that could pressure them to stay their hand and wait, and wait and wait,” he said.

However, business leaders”™ outlooks for their firms remain relatively optimistic, with most forecasting improvement or stability in the coming months, according to the association.

Specifically, 34 percent of survey respondents forecast improvement, the same as last quarter, while 48 percent expect their firms to remain stable, compared with 52 percent last quarter.

Only 17 percent expect a decline, up slightly from 13 percent last quarter, the survey data said.

Of those surveyed, 23 percent are hiring and 60 percent plan to remain stable in their workforce. But 16 percent anticipate downsizing over the next few months, compared with 10 percent last quarter.

“The economy is growing, however, the rate has been slow compared to our own long-term growth rate, and when compared to the U.S. average” Gioia said. “Combined with the state”™s fiscal situation, it”™s clear we”™re at a critical turning point and lawmakers need to make decisions that will encourage growth, not hinder it.”

Gioia points to hundreds of millions of dollars in shortfalls the state is facing as well as reports indicating that Connecticut is  drowning in red ink — a point about which state Sen. Toni Boucher (R-26th Assembly District) has been vocal.

“To those who think that Connecticut is not drowning in red ink, think again,” Boucher said in a recent statement on the state economy. “Connecticut has only $10.1 billion of liquid assets available to pay debts totaling $72.2 billion. To fill this financial hole each taxpayer would need to send $48,600 to the state.”

She references a $370 million deficit this year, a more than $550 million deficit next year, and a Truth in Accounting”™s state data lab report ranking Connecticut 49 out of 50 in fiscal health.

“There has got to be a way that state policy makers solve this crisis without adding on burdens, such as additional taxes on business or individuals that will slow growth,” Gioia said.

Gioia points out that growth may be sluggish, but it is not stalled, with 58 percent of respondents stating  they are using financing to cover the costs of capital investments, mainly to bolster production or sales, trim operational costs and/or invest in technology.

The survey also found 31 percent of survey respondents have used credit in the last three months to meet their financing needs.

Key findings regarding credit and lending include: 83 percent of respondents report that credit availability is not a problem; 94 percent report no changes in lending terms; and 31 percent consider Connecticut”™s lending climate good or excellent. Fifty percent consider it average.

The survey, which was emailed to 1,500 Connecticut business leaders in September and October, received a total 210 responses with a margin of error of +/- 6.9 percent.

The survey also cited the Farmington Bank Credit Availability Index, which addresses the health of Connecticut”™s credit markets.

This quarter, the index showed an upturn in current conditions and future expectations with a rating of 61.1, up from 57.4 last quarter.