Survey: Economists’ outlook is sunny but not due to tax cuts

WASHINGTON — America’s business economists are sketching a bright picture for the coming months, with a survey finding that more of their companies foresee rising sales and expect to continue hiring and raising pay.

At the same time, nearly two-thirds of respondents in the latest survey by the National Association for Business Economics say President Donald Trump’s tax cuts, which were promoted as likely to spur hiring and investment, haven’t affected their plans.

The survey being released Monday appears to suggest instead that the economy’s momentum is being driven primarily by solid growth worldwide and by the nearly nine-year-old U.S. expansion from the depths of the Great Recession. With the nation’s unemployment rate at a 17-year low of 4.1 per cent, more companies are facing pressure to raise wages because there are fewer workers available to hire.

The survey reflects the responses of 107 NABE members to a survey conducted between March 22 and April 3.

The president and congressional Republicans have attributed much of the economy’s recent gains to corporate optimism over last year’s $1.5 trillion worth of tax cuts, which included a permanent reduction in business tax rates. Some employers paid bonuses or raised wages after the tax cuts were signed into law, and companies such as banks are reporting higher profits. Yet the survey of business economists appears to downplay whatever influence Trump’s tax and trade policies might be having on corporate America’s plans.

Sixty-five per cent of the NABE respondents said their companies haven’t changed their hiring or investment strategies because of the tax cuts. In addition, 68 per cent said Trump’s tariffs on imported steel and aluminum aren’t altering their hiring or investment plans.

For both taxes and tariffs, goods producers, a category that includes manufacturers, were more likely to adjust their plans in response to the administration’s agenda. But even among those companies, only a minority of goods producers said they were making changes.

Among the other key findings from the survey:

— Wage growth is becoming more widespread. The survey’s ratio of employers that are increasing pay relative to those cutting wages registered its best reading since the association began analyzing the data in 1982. The survey indicated that wage growth should likely be strong over the next three months, which would benefit workers and perhaps consumer spending, the economy’s primary fuel. So far, the government’s monthly jobs reports have shown relatively modest pay raises, even though many economists have expected low unemployment to accelerate average pay growth.

— Material costs for companies rose in the survey to their highest level since 2011. Along with rising wages, this suggests that companies may face higher inflation, which could be passed along to consumers in the form of price increases.

— Higher labour and material costs could slow profit growth. Though a majority surveyed expect rising sales in the next three months, only a third foresee growth in profit margins. The survey results suggest that profit gains are slowing at least in part because employers are spending more of their revenue on materials and workers.