Photo: US Air Force
“Optimism that political hurdles will be cleared within six months may be overcoming uncertainty related to the sequester and potential government shutdown,” writes Dane Vrabac, a U.S. economist for Morgan Stanley.Morgan Stanley’s proprietary Business Conditions Index* surged 13 points to 55% in February. Sub-indices for expectations, capital expenditure plans, and credit conditions all improved.
Vrabac noted that improving attitudes toward fiscal policy uncertainty played a big role.
“This month, 40% (versus 57% in January and 65% in December) of respondents reported companies have downgraded business conditions because of fiscal policy uncertainty,” wrote Vrabac. “This is a low since June 2012, but a full 30% do not know if the March 1 sequester and March 27 expiration of the continuing resolution funding the government will have an impact.”
“The gain in expectations was consistent with our forecast that private sector activity will support a pickup in economic growth later this year and into 2014 once politicians get out of the way, but we see significant near-term fiscal policy risks remaining,” he wrote.
Hiring plans were among the few subindices that deteriorated.
Here’s a breakdown of the index:
Photo: Morgan Stanley
From Morgan Stanley:
What is the MSBCI?
The Morgan Stanley Business Conditions Index (MSBCI) is an economic barometer that is based on an internal monthly canvass of our industry analysts in North America Equity Research. Though brief, this survey covers a wide range of topics pertaining to the companies under our analysts’ coverage. Specifically, the MSBCI is comprised of a “headline” index that measures general analyst sentiment as well as component indicators that gauge financing, advance bookings, pricing, hiring, capital spending, and expectations. Since its inception in June 2002, the MSBCI has served as a valuable and effective instrument for anticipating directional moves in the U.S. economy (see “Introducing the Morgan Stanley U.S. Business Conditions Index,” July 11, 2003).
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