More U.S. chief executives expect to boost capital spending on plants, equipment and technology in the next six months, which bodes well for future economic growth, according to a quarterly survey released Tuesday.
A survey by the Business Roundtable, a group of CEOs from large U.S. companies, found that 60 percent planned to increase capital spending — one of the factors that can sustain economic growth — in the next six months. That compared to 50 percent in the December survey.
"Capital investments by businesses are really the best predictor of future economic growth at this point in the recovery," Pfizer chief executive and Business Roundtable Chairman Hank McKinnell said on a conference call. "It reflects anticipated strong demand for goods and services here and abroad, and these investments will build capacity and technology capabilities into the future."
The upbeat capital spending outlook helped drive the Business Roundtable's Economic Outlook Index to a record high of 104.4, up sharply from the December reading of 98.9. The index reflects CEO's outlook for the economy in the next six months.
Recent U.S. data has also indicated rising business demand for capital goods and showed the economy is on solid ground. While the survey did not ask whether companies would be spending on replacements or expansion, McKinnell said increased capital investment plans came from an array of sectors.
CEOs were not as enthusiastic about increased hiring.
Only 36 percent of CEOs said they planned to increase employment in the next six months, down slightly from the 40 percent that said in December they would boost hiring. And 46 percent of the CEOs surveyed planned to keep staff levels steady, up from the 40 percent in December.
About three-quarters of the Business Roundtable's 160 member companies completed the survey.
The Business Council — another group of CEOs — said last week that their survey results also indicated optimism about the U.S. economy and profit growth but showed the same hesitance in adding jobs.
Employment levels have lagged expectations for this period in the economic recovery. McKinnell attributed that to the growth in non-farm labor productivity, which has been strong for a while.
"What this means to me is that we have the opportunity to seek even higher levels of economic growth, creating more jobs for more Americans, without triggering inflation," he added.
While 89 percent of the CEOs quizzed for the survey expect sales to grow in the next six months, the CEOs expect economic growth of 3.5 percent compared with the 4.4 percent realized last year.
McKinnell said that was largely due to concern about oil prices.
