Business concerns over trade policy could increase substantially even if few companies are currently rolling back planned expansions, according to a new survey from the Federal Reserve Bank of Atlanta.
The national survey found few indications that a rise in tariffs between the U.S. and other countries is leading businesses to postpone or cancel their capital investments. Economists say that prospect could lead to weaker U.S. growth and potentially force the U.S. central bank to rethink its approach on interest rate hikes.
Nearly 20% of the 330 companies in the survey said they were reassessing capital expenditure plans, while the rest said their projects were still on track.
Of the companies that said they were reviewing their capital expenditures, 9% said they dropped their plans, 22% postponed them and 14% accelerated them. One company said it added capital expenditures for this year and 2019, and 67% of firms said they were still evaluating how they may respond.
Still, the negative effects of trade uncertainty "could easily grow," the researchers who conducted the survey wrote in a blog post. They noted, for example, that the dispute between China and the U.S. has escalated since companies responded to the survey, which was in the field July 9 to July 20.
Atlanta Fed researchers conducted the Survey of Business Uncertainty with Stanford University Professor Nick Bloom and University of Chicago Booth School of Business Professor Steven Davis, who is also a senior fellow at the Hoover Institution.
Manufacturers were more likely to say they were reviewing their capital expenditures, with 30% of them saying that was the case. That compared to 14% of service providers, which made up the bulk of the companies in the survey and the researchers say are likely less dependent on international commerce. Meanwhile, 25% of goods producers said they were re-examining their expenditures, while 28% of those in retail and wholesale trade, transportation and warehousing sectors were doing so.
Fed Chairman Jerome Powell has maintained a positive outlook for the U.S. economy this year, saying it is difficult for the Fed to predict the effects of the trade battles. But other Fed officials, including Atlanta Fed President Raphael Bostic, have warned repeatedly that tariffs could deal a significant blow to the U.S. economy.