U.S. companies expect their investment and hiring to grow at a slower pace in 2018, and only a small share say proposed tax legislation is driving their capital-spending decisions, according to The Institute for Supply Management. The group's semi-annual forecast showed factory purchasing managers see capital spending rising 2.7% in 2018, slower than the 8.7% gain reported for this year.
Their counterparts at service providers project investment growth of 3.8%, also weaker than this year’s 7% advance.
Less than half of respondents in both manufacturing and services said they’d raised wages to attract workers.
The survey, conducted in November, suggests that the economy will get less of a boost from business investment next year after strong capital spending helped push the pace of growth above 3% in the past two quarters.
The findings also raise questions about any impact from the proposed reduction in corporate taxes moving through Congress, even as the Trump administration and Republicans say it will result in a sustained increase in the rate of expansion.
ISM also issues the separate monthly surveys with purchasing managers’ indexes for manufacturing and service providers.
Respondents to a special question in the semiannual poll showed companies were giving less importance to prospects for tax reform or an overhaul of regulations when it came to capital spending. When asked what was behind their investment plans for the next 12 months, about two-thirds in each group of manufacturers and service providers cited the general business outlook, while less than 6% attributed it to business tax reform.
At a Nov. 14 speech to the Wall Street Journal CEO Council by Trump’s top economic adviser, Gary Cohn, the moderator asked business leaders in the audience for a show of hands if they planned to increase capital investment should the tax plan become law. Few people responded. “Why aren’t the other hands up?” Cohn asked.
Economic growth is expected to continue, according to the semi-annual survey. Purchasing managers in manufacturing anticipate sales will rise 5.1%t next year, and service providers see revenue gains of 6%. That’s in line with other recent reports indicating business sentiment remains elevated.
Companies will continue to boost headcounts next year, though at a slower pace, the survey also showed.
Manufacturing will see employment growth of 1.2% in 2018, following a 2.3% gain reported for this year since December 2016.
Service businesses project a 1.5% increase in hiring after a 2.4% gain in 2017.
Both groups predict labor and benefits costs will increase next year, with a 2.1% advance for manufacturing and 2.6% for services.
When asked whether companies had raised wages to recruit new people, 53% of responses in the manufacturing panel said no, while 44% answered yes.
Among service providers, 57% of respondents said they hadn’t lifted worker pay when hiring, while 37% said they had, according to the survey.
While factory purchasing managers forecast prices will rise 1.8% in 2018 on average and service businesses expect price growth of 2.2%, both groups anticipate their profit margins will expand next year.
By Shobhana Chandra