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US chart of the week – Corporate euphoria

Summary:
CEO sentiment reaches a record high, but protectionist tendencies could impact confidence down the road.US businesses are feeling good – in fact, they are borderline euphoric. The latest evidence comes from the quarterly Business Roundtable CEO economic outlook index, a survey of 137 CEOs, conducted in February, which rose to its highest level since the survey began 15 years ago. All three sub-indices (capex, employment, sales) rose to fresh highs.Particularly encouraging was the sharp rise in the capex sub-index. This has tracked US investment particularly closely in recent years (see Chart), and so it is a survey worth following. We see the subindex’s rise as supportive of our central scenario of a sharp pick-up in corporate investment this year. We forecast real nonresidential

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CEO sentiment reaches a record high, but protectionist tendencies could impact confidence down the road.

US chart of the week – Corporate euphoria

US businesses are feeling good – in fact, they are borderline euphoric. The latest evidence comes from the quarterly Business Roundtable CEO economic outlook index, a survey of 137 CEOs, conducted in February, which rose to its highest level since the survey began 15 years ago. All three sub-indices (capex, employment, sales) rose to fresh highs.

Particularly encouraging was the sharp rise in the capex sub-index. This has tracked US investment particularly closely in recent years (see Chart), and so it is a survey worth following. We see the subindex’s rise as supportive of our central scenario of a sharp pick-up in corporate investment this year. We forecast real nonresidential investment to grow 7%, making it a key driver for our 3% 2018 GDP growth forecast. At face value, and based on historical correlations, the latest CEO survey actually points to 20% growth in investment—but this is probably not entirely plausible.

Can the euphoria continue? The risk right now lies with President Trump’s recent protectionist turn – especially his latest tariffs on steel and aluminium. The resignation of pro-business and pro-trade economic adviser Gary Cohn is not encouraging. For now, we think the tariffs are mostly political posturing and negotiation tactics, but business sentiment – and potentially investment – could be dented if US policy hardened in the coming weeks, especially towards China.

Thomas Costerg
Thomas covers the US and Canadian economies from New York. He was previously based in London, covering the UK and the euro area. Thomas started his career with Lehman Brothers in London in 2007 and also worked at a Paris-based private bank and asset manager. Do not hesitate to contact Pictet for an investment proposal. Please contact Zurich Office, the Geneva Office or one of 26 other offices world-wide.

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