CFO Optimism About U.S. Economy Rises to Record After Tax Cuts

(Bloomberg) -- Chief financial officers in the U.S. are feeling better than ever in the wake of federal tax cuts enacted late last year.

A measure of CFOs' sentiment about the U.S. economy rose 2.6 points to a reading of 71.2 in the first quarter, the highest level since the survey began in 1996, according to a quarterly report Wednesday from Duke University's Fuqua School of Business and CFO Magazine. Two-thirds of executives said that corporate tax reform is helping their firms, with 36 percent describing the overall benefit as medium or large.

“The extremely high level of business optimism is tied to the recently passed corporate tax reform,” John Graham, a finance professor at Duke, said in a statement accompanying the report. “Our analysis of past results shows the CFO Optimism Index is an accurate predictor of future economic growth and hiring, therefore 2018 looks to be a very promising year.”

President Donald Trump in December signed the Republican-backed legislation slashing the corporate income-tax rate to 21 percent from 35 percent, placing the U.S. just below the worldwide average of 22.5 percent. The effective rate for U.S. companies is expected to fall from 24 percent to 18.8 percent, according to the Duke report.
 
Forty-four percent of U.S. companies plan to increase wages more than they would have without tax reform, the survey found. Thirty-eight percent plan to increase employment and 31 percent will increase cash holdings. Among companies with defined benefit pensions, 28 percent say they will increase pension contributions.

Dozens of U.S. companies from Walmart Inc. to AT&T Inc. announced pay increases and bonuses for their employees in the weeks following passage of the tax bill. Even so, critics of the legislation say it's poised to benefit shareholders over workers.

Stock buybacks will total a record of around $800 billion this year, up from $530 billion in 2017, according to estimates from investment strategists at JPMorgan Chase & Co.

To contact the reporter on this story: Jordan Yadoo in Washington at jyadoo@bloomberg.net.

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Kristy Scheuble at kmckeaney@bloomberg.net, Brendan Murray

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