American CEOs plan to hire and invest at a slower pace in the next six months, with future economic growth hinging on trade agreements and tax reform, according to a quarterly survey released Monday.
Leaders are trimming back on optimism, said the results for Business Roundtable’s second-quarter Economic Outlook survey, which asks CEOs about their expectations for the next six months. The main driver of the cautious responses was uncertainty around passage of tax reform and the Trade Promotion Authority (TPA) in Congress, after a slow rebound from bad weather, labor disputes, a strong dollar and low oil prices in the first quarter of this year.
The survey of 128 CEOs between April 22 and May 13 found that top corporate leaders expect the economy to grow at 2.5% in 2015. That’s up slightly from 2.3% projected growth this time last year, but down from 2.8% projected growth from the first quarter of 2015.
As a result of the lower estimate of gross domestic product (GDP) growth, just 34% of CEOs now plan to hire more U.S. employees, down from 40% last quarter. About 70% expect increased sales, down from 80% last quarter, and 35% plan to increase capital spending, down from 45% last quarter.
“These results are consistent with an economy that operates below its potential capacity,” said Randall Stephenson, Chairman and CEO of AT&T (T) and Business Roundtable spokesman, in a media conference call. “Industrial production is down … and we view that as a concern.”
The results come as the House of Representatives considers TPA, which would give President Obama “fast track” authority to approve an international trade deal with countries representing 40% of the world’s economy, including many Asian countries. Business Roundtable has supported the trade deal as a route to job creation.
Fifty-four percent of Business Roundtable executives feel more access to global markets would lead their firms to hire more U.S. workers this year, according to the first-quarter survey, completed between Jan. 26 and Feb. 13.
By rallying in favor of TPA , Business Roundtable members also wanted to send a message that bipartisan efforts are possible in Congress — and hopefully build momentum for a non-partisan debate on tax reform.
Debate over lowering corporate tax rates has dragged on for months. Instead, Congress has passed (or expired) various “tax extenders,” tax credits or deductions like research and development credits or credits for renewable energy use.
“I think it’s a mistake not to pass tax reform,” Stephenson said, “because we have such a non-competitive tax structure. Are we prepared to see all those extenders go away? Either you get tax reform done or push extenders to get competitive.”
While Stephenson said current public policy “does not support investment,” he also said the slow economic start to the summer is due in part to weak first-quarter growth. The economy shrank at a 0.7% annual pace in the first quarter due in part to low oil prices, a strong dollar, port strikes and winter weather, according to revised government estimates.
Though the harsh winter and union strikes in the shipping sector have passed, the survey indicated that business leaders are still bullish on investing due to low oil prices and the strong dollar.
“There are a number of facets forecasting lower [capital expenditures], but none are surprising,” Stephenson said. “Obviously oil and gas are a big influencers. But investments on everything from equipment to structures to intellectual property are running down. … The strong dollar is having an effect,” he said, “and there is some aggressive regulatory oversight that is causing businesses to slow down.”
The national per-gallon average for regular unleaded fell from $ 3.67 last summer to about $ 2 in January, leading many oil companies to look to layoffs and cutbacks. Further, dollar has been soaring against the anemic euro since spring, due to falling interest rates and a weak economy in the eurozone and the prospects of rising rates in the U.S.
Business Roundtable is a professional association whose member companies are used as a barometer of corporate America because they comprise more than a quarter of the total value of the U.S. stock market, including representatives from companies like Viacom (VIA) and Pfizer (PFE), according to its website. The results are summarized in an index called the Business Roundtable CEO Economic Outlook Index, which ranges from -50 to 150, where readings at 50 or above indicate an economic expansion, and readings below 50 indicate an economic contraction.
The overall index declined from 90.8 in the first quarter of 2015 to 81.3 in the second quarter of 2015. That result was tempered, but above the long-term average of 80.5.
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