CEOs optimism rises on potential for tax code overhaul

The nation’s top CEOs are bullish about Congress passing a sweeping tax package, which drove up optimism to a six-year high for the final quarter of the year.

The Business Roundtable’s index of CEO projections for sales, capital spending and hiring over the next six months increased to 96.8 for the October to December quarter, up from 94.5 in the third quarter, the highest level since early 2012.

{mosads}”It’s hard to know exactly how much of tax reform is baked in to the growth estimates but we at BRT and our CEOs have been optimistic for most of this year about the prospects for tax reform so I think you have to assume that a good chunk of that growth projection is based on an expectation that tax reform will succeed,” Joshua Bolten, president and CEO of BRT told reporters on Tuesday.

“It’s hard to say exactly what the precise component of tax reform has added to the growth expectations of CEOs but it’s definitely in there,” Bolten said.

Bolten said CEOs are banking on tax reform, and especially a cut in the corporate rate to 20 percent, going into place next year.

CEO plans for capital investment rose to their highest level since the second quarter of 2011.

Expectations for sales rose 5.1 points in the latest survey while hiring plans dipped 4.5 points.

This time around business leaders view labor, and not regulations, as the largest cost pressure facing their companies — the first time in six years that regulatory costs didn’t top the list.

“I don’t think you should look at the employment number as an actually a dip, it’s just a slight reduction from the forward-looking optimism of last quarter,” Bolten said. 

The strong capital expenditures number “I think does reflect an expectation of opportunity in this market, especially with tax reform, to invest more, which even in those cases where it doesn’t turn into greater employment opportunities, the investment should turn into investment in productivity for the employees that are there and the increased productivity is what will ultimately drive wages gains in the economy, which are badly needed,” he said. 

The House and Senate will attempt to reconcile their tax bills before the end of the year. 

JPMorgan CEO Jamie Dimon, who is the chairman of BRT, said on the media call that the benefits of tax reform will eventually reach U.S. workers but not overnight. 

“It’s not going to happen tomorrow,” he said. 

The labor market has been gradually inching toward full employment. The unemployment rate in October fell to 4.1 percent, a 17-year low.

November’s job numbers will be released on Friday by the Labor Department.

The CEOs are forecasting 2.5 percent annual economic growth in 2018.