Recently, commercial optimism is increasing. For example, in the Last CFO survey Fisited by the Duke University and the Richmond and Atlanta FEDS, CFO optimism on the global American economy has increased to its highest level in three and a half years. And the Optimism index of small businesses of the National Federation of Independent Businesses (NFIB) Increased in December to 105.1, its highest level since October 2018 (Figure 1), after having recorded its greatest increase in a single month in November. Could this increase in optimism lead to an increase in commercial investments? This week’s position examines the historical correlations between business optimism and commercial investment measures to see if such a result is likely.
To view the strength of the relationship between commercial optimism and various measures of commercial investment, I believe that the impulse response functions, which graphically describe the impact of an unexpected standard deviation Commercial optimism on the quarterly growth rate of the corresponding commercial investment variable. To do this, I first consider a Var with two variables which includes the optimism index of small businesses as well as a measure of commercial investment in capital or labor. I consider six different measures of commercial investment:
- Total non -enlarged pay salaries in the private sector
- Non -agricultural private production / pay pay by non -supervivor workers
- Global non -residential fixed investment
- Investment of non -residential structures
- Intellectual Property Investment
- Orders for real equipment
The first two variables are published by the Bureau of Labor Statistics (BLS), the following three are published by the Bureau of Economic Analysis (BEA), and the last variable is based on data from the Census Office Deflaged by the Index of Prix of producers for private capital in equipment capital (which comes from BLS). All variables are aggregated at the quarterly frequency, with data covering 1986 to 2024, with the exception of the actual orders of equipment, which begins in the second quarter of 1992.1
Figure 2 below shows the response function to the estimated impulse associated with the actual commands of equipment. On the basis of the historical relationship between the optimism index of small businesses and the quarterly growth rates of basic orders for equipment, a standard deviation shock of the optimism of small businesses is associated to an increase of approximately 2.5 percentage points in the quarter quarter of the annualized growth rate of residential investment. The boost is temporary and fades after two quarters, to what extent the impact on quarterly growth is statistically indistinguishable from zero (at the level of confidence of 68%).
Figure 3 below shows the response function to the estimated impulse associated with the growth of the unprecedented payroll in the private sector. A shock to the standard evaluation of the optimism index of small businesses is associated with an increase of approximately 1.3 percentage points in the annualized growth rate from quarter to more than one quarter of private pay restless. In addition to being lower in amplitude than the response estimated in Figure 2, the effect is even more temporary: it is not statistically significant in the quarter of the shock and is statistically indistinguishable from zero during the next quarter.
Table 1 below sorts the six commercial investment results according to the amplifications of their responses in the shock period. The table suggests that the increase in optimism could affect certain forms of commercial investment more than others. The basic investment of the goods of equipment and structures has historically experienced a greater growth response to an increase in optimism. On the other hand, the immediate effect of higher optimism on the hiring of the private sector and the non -supervised pay was more silent.
Do these results testify to the power of positive thought? Not necessarily. Shocks identified with commercial optimism in this exercise do not represent impact impact. They can grasp the influence of other economic variables not included in regression, including changes in labor, tax and regulatory policies. If these policy effects do not materialize as they have done in the past, we could see less responsiveness from commercial investment to the dynamic feeling than historical experience suggests.
Note: Macro minute will be on a break next week. Good day of presidents!
The opinions expressed in this article are those of the author and not necessarily those of the Federal Reserve Bank of Richmond or the Federal Reserve System.