WASHINGTON: Despite recent missteps, hopes that US President Donald Trump will succeed in implementing his pro-growth agenda, including tax cuts, pushed CEO optimism to a three-year high, according to a survey released Tuesday.
But if the tax cuts and other measures fail to win approval, businesses could cut back on hiring and investment, according to the Business Roundtable.
The group’s CEO Economic Outlook Index, which measures corporate spending and hiring plans over the next six months, rose to 93.9 for the second quarter, the highest since the same period of 2014 and putting the index above the historical average of 80 for the second consecutive quarter.
Capital investment plans rose 4.6 points from the last quarter but hiring plans for the next six months fell 3.3 points.
“I know the vast majority of (CEOs) believe that really positive tax reform remains more than possible, in fact likely, sometime over the course of the next year and they’re making their plans based on it,” Business Roundtable president Joshua Bolten told reporters.
However, he pointed to another recent survey that showed that while companies would increase hiring and investment if the tax reform is approved, the reverse was also true.
“The really interesting result I found from our survey was that at the same time if you asked CEOs what happens if tax reform fails or is delayed, the majority of our CEOs said they will reduce their current plans for hiring and capex (capital expenditures),” Bolten said.
Still, he said survey respondents were not overly worried that political turmoil in Washington could derail the
Trump administration’s plans for tax cuts and reduced regulation.
“Whenever there are distractions from the agenda that we want to see accomplished in Washington, everybody is concerned but I’d be careful not to overstate that concern,” Bolten said.
The survey projects 2.0 percent growth this year, down two-tenths of a point from the prior quarter.
The small drop in hiring plans followed an 18-point jump in the index in the previous quarter, meaning that hiring plans remained solid.
Bolten noted, however, that labor may be scarce, with the unemployment rate now at a 16-year low of 4.3 percent.
“There is some tension now with the unemployment rate coming down and the expectations of our CEOs for more hiring,” he said, noting that this could put upward pressure on wages.
“That may be a challenge for some businesses that’s basically good for the economy.”