Updated Mar. 9, 2017 at 12:01 p.m.

Survey: Execs' economic optimism highest since 2004

Published: 2017-03-09 00:01:00
Updated: 2017-03-09 12:01:00

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A new survey of finance executives finds enthusiasm about the U.S. economy at the highest level since 2004, the latest in a series of reports from consumer confidence to job growth that point to economic growth. That enthusiasm is likely to mean more jobs and corporate hiring with execs saying they plan more of both.

The quarterly survey from the American Institute of Certified Public Accountants released early Thursday found that 69 percent of executives say they are optimistic while only 10 percent are pessimistic.

Just as the bulls have been running on Wall Street since the election of President Donald Trump in November, so too are bulls apparently being unleashed in corporate offices. Not surprised by the survey is North Carolina State University economist Dr. Michael Walden.

"These results are in line with other surveys and data about the economy. Business confidence has increased because businesses like the Trump economic agenda - particularly the reduction in regulations and tax rates," Walden told WRAL TechWire.

"Consumers also seem to be caught up in a more bullish attitude. I see the same in North Carolina, although my NC Leading Index has not yet shown gains."

Overall, the CPA Outlook Index, which is a gauge of future economy activity, rose to a score of 76 on the 100-point scale for the first quarter of 2017. That's up two points from the previous survey and nine points in the survey just ahead of the election by the AICPA, which has a major office in Durham. It's the highest total since the fourth quarter of 2014. The recent low was 59 in the fourth quarter on 2012.

“We saw a big jump in economic optimism following the election, and that has been reinforced and extended in our latest results,” said Arleen Thomas, managing director of Americas Market for the AICPA. “Much of this positive sentiment is due to expectations of lower corporate taxes and reduced regulation under the new administration. I expect business executives will be monitoring progress on these goals closely.”

(Duke University also publishes a quarterly economic outlook survey, its latest expected in the near future. The AICPA and Duke reports are widely published.)

Big growth? Not so fast

Tracking execs' outlookThe Trump Administration expects growth of 3 percent in the nation's Gross Domestic Product over time, but Walden's not sure.

"I am not yet seeing a national growth rate of 3 percent - I still think there are two many headwinds [including] demographics, slow productivity growth [the slowest in five years, the government said Wednesday] in front of such a gain, which be a major improvement over the nation's sub 2 percent growth rate," he explained.

"The big question is how the Administration will proceed on trade. The business community is divided - those relying on imports worry about higher costs. There is also a general concern about sparking a trade war."

While the three major U.S. markets have dipped from recent record highs, the Dow, S&P and Nasdaq remain 10 percent or more higher in what has been coined as the "Trump Bump."

Consumer confidence, meanwhile, is at a 15-year high, according to The Conference Board.

And on Wednesday, payroll service provider ADP reported that businesses added nearly 300,000 jobs in January, up 37,000 from January with construction jobs surging by 66,000 - the largest jump in 11 years.

More jobs, expansion

Tracking execs' optimismBecause of upbeat feelings about the economy, execs told the AICPA that they planned to increase hiring, expanding operations, and spending more on technology as well as training and development.

Nearly 40 percent of execs said their companies don't have enough employees, and of those 20 percent plan to add jobs. That's up two points from the last survey. The percentage of execs who say they are reluctant to hire increased slightly to 16 percent from 15 percent in the fourth quarter.

However, some concerns also are increasing, with 33 percent of execs worried now about inflation, up 22 points in the survey taken before the election.

Also, 40 percent worry about increased labor costs, but that is a 3 point drop from the previous survey.

But NCSU's Walden doesn't see those concerns as limiting growth.

"There is also an expectation that inflation and interest rates will rise this year. However, these apparent negatives won't derail the economy if job growth, wage growth, and profit growth are strong enough," he said.

Labor costs rose at a 1.7 percent annual pace in the fourth quarter, according to The Associated Press. That's up from a 0.7 percent increase from July through September.

Another 24 percent are worried about raw material costs, up 4 percentage points from the previous survey.

Rising expectations

The Trump Administration is still making budget plans and won't address tax reform until the debate over health care is resolved. But all the regulatory relief, tax cuts and other changes have raised expectations very high, Walden noted.

"The bottom line is the Trump agenda has built up positive expectations for the economy. But these expectations have all developed before any of the major legislative pieces have gotten through Congress," he said.

"This, then, is the danger. If the Trump economic plan is derailed or dramatically altered from what the business community expects, then stocks, hiring plans, and general optimism could head the other way - down!"

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