American CEOs are feeling glum.
More and more of them believe 2016 will be another ho-hum year for the U.S. economy, according to recent surveys by the Business Roundtable and PwC.
As a result, CEOs aren’t planning to spend much more next year. That’s not good news for the economy.
When business leaders are optimistic about the future, they invest in new equipment, hire more people and beef up research and development for new products. That drives growth — for next year and beyond.
But right now, the Business Roundtable’s forecast for business investment in 2016 is anemic. It’s the lowest since 2009 when the U.S. was still in the Great Recession.
“To see that sharp decline in capital investing is alarming,” says Randall Stephenson, CEO of AT&T and chair of the Business Roundtable. “Investment drives hiring. It drives productivity and wage growth.”
Washington is holding growth back
Stephenson blames the slowdown in the global economy and Washington.
CEOs are frustrated that Congress hasn’t done corporate tax reform or much of anything lately.
“If we want to see the U.S. economy and hiring really take off, Washington needs to adopt a smarter approach to regulation,” says Stephenson.
He calls the U.S. tax code “uncompetitive” and says more businesses are likely to flee the U.S. to cheaper tax locales in Europe or elsewhere if Congress doesn’t act. The big American drug company Pfizer just announced a mammoth deal to buy Ireland-based Allergan, which was partly driven by plans to move the company’s headquarters overseas and take advantage of lower taxes.
“When you have companies moving headquarters to avoid the U.S. tax system, it tells you something is fundamentally wrong,” says Stephenson.
The slowing global economy is a big factor
PwC is also seeing growing pessimism among executives. In its latest survey of over 200 executives of private companies, it found confidence was dropping fast, especially about the health of the global economy.
The devaluation of the Chinese yuan in August that triggered a global stock market sell-off is still weighing on CEOs.
Only a quarter of executives surveyed by PwC are planning “major” new investments now, down from 36% in the prior quarter. And just over half of the companies plan to do more hiring, which is also a decrease from earlier in the 2015.
But PwC says this isn’t 2007 or 2008. No one is talking about a terrible situation.
“We’d be Chicken Little if we predicted anything as dire as [2007] now,” says PwC.
So 2016 probably won’t be a breakout year for growth that many are hoping for — in the U.S. or beyond.
Business Roundtable predicts the U.S. economy will grow at 2.4% next year — about the same as this year and in the range of many other predictions.
