The stock market sell-off last week was fueled in part by worries that big companies are going to have a hard time keeping their profits growing as the Federal Reserve starts shutting down its massive money pumps.
That's news to a panel of top business economists, who insist profit growth will remain on track, according to a survey released Monday by the National Association for Business Economics.
"The outlook for 2014 is strengthening," NABE President Jack Kleinhenz, said in a statement accompanying the release. Profit gains are expected "regardless of any changes in monetary policy."
Last week's stock market rout was sparked by signs that the worlds developing economies may be slowing. But investors are also jittery about the Federal Reserve's recently announced plans to taper off its five-year-old, $3 trillion economic stimulus program.
The worry is that the end of the so-called Era of Cheap Money could crimp the steady, ongoing rise in corporate profits that has propelled stocks higher since the end of the Great Recession. Higher borrowing costs could prompt companies to cut back on investment in expanded operations, including hiring and new plant and equipment.
But the business economists -- many of whom work for the country's biggest companies -- doubt that will happen. Their advice: Don't fear the taper.
The Fed's new policy will have "no material effect" on either profits or capital spending plans, according to some 70 percent of the 64 respondents.
The results weren't uniform across industries, though. Economists at finance, insurance and real estate companies -- about a third of those surveyed -- showed the most concern about the Fed's new moves. Some 40 percent said they expect a profit hit this year from the Fed's change in policy.
It's not hard to see why most business economists are upbeat about 2014.
Sales growth picked up speed during the last three months of 2013, according to two-thirds of them, and a third said profit margins continued to increase. Only 8 percent said profit margins were shrinking.
The reason: Many companies continue to raise prices, while their costs aren't going up. Some 43 percent expect to boost prices over the next three months, though most expect less than a 5 percent bump.
But while many expect to raise prices, some 85 percent said their costs of labor and materials costs were flat or falling, compared with 77 percent in the October survey.
Low inflation has held the lid on materials costs, though about a third of companies surveyed expect to see those costs rising by as much as 5 percent in the next three months. And as the job market has improved, labor costs begun rising for some of the companies represented in the survey.
But 70 percent said wages and salaries were flat over the last three month; another 7 percent said they've fallen. Though some companies have begun expanding payrolls, job growth remains weak -- only about a quarter of companies said they're hiring, about the same as in October.
One other widely-feared threat to profits -- the new healthcare law -- is apparently having little impact. Some three-quarters of those surveyed said the new law expanding health coverage to millions of uninsured workers is having no impact on their businesses. Some 21 percent said they expect it will hurt their business; another 5 percent said they think it will eventually help.
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