By Nina Trentmann
U.S. corporate finance chiefs are optimistic that the country’s economy as a whole – and their companies in particular – will recover in 2021 despite concerns over possible tax rate changes and higher labor costs.
According to a survey by Duke University’s Fuqua School of Business and the Federal Reserve Banks in Richmond and Atlanta, finance chiefs expect their companies’ revenues to grow an average of 6.9% over the next year, after a 2020 projected increase of 0, 3%. According to a survey of around 300 CFOs, wages, prices and employment levels are also expected to rise.
“CFOs are seeing the cloud of the pandemic,” said John Graham, a professor of finance at Duke University who oversaw the survey, due to be held Tuesday. “Some of the growth we’ll see next year will come from the low 2020 base.”
The U.S. economy grew strongly in the third quarter, up 7.4% from the previous quarter and recovering about two-thirds of the soil it had previously lost in the pandemic. However, recent indicators point to a new slowdown in retail spending and economic activity, accompanied by spikes in coronavirus infections, hospital stays, and death rates.
Congress on Monday approved a $ 900 billion relief to households and businesses hit by the coronavirus pandemic and passed an emergency measure to help lead the country through a difficult winter and into a new year.
Tuesday’s poll results are in line with a recent survey by the American Institute of Certified Public Accountants that found 37% of respondents expect the US economy to improve in the next 12 months. Forty-nine percent believe their companies’ financial performance will continue to grow during this time, AICPA said.
Much will depend on the pace of vaccination against Covid-19 after two vaccines were approved in the US in the past few weeks. Delays in vaccination efforts could dampen economic growth, Graham said. “If the vaccine contains a snafu it would be another risk,” he said. “She [finance chiefs] assume that we will make progress with the vaccine. ”
Nearly 70% of North American CFOs said in a recent survey by accounting and advisory firm Deloitte that they expect a vaccine to prop up the economy by mid-2021. Deloitte is a sponsor of the CFO Journal.
The Duke poll’s chief financial officers said they were concerned about possible rule changes related to taxes and regulation. President-elect Joe Biden has proposed raising the corporate tax rate from today’s 21% to 28%, along with other measures such as an alternative minimum tax of 15% on companies making profits of $ 100 million or more and higher tax rates on income from foreign subsidiaries of US companies.
Mr. Biden has also proposed a 10% tax penalty for companies moving their business overseas and a 10% tax credit for companies creating new jobs in the US
“We need to monitor possible changes in tax law,” said Philip D. Fracassa, chief financial officer of Timken Co., a North Canton, Ohio-based manufacturer of transmissions, belts and chains. “I hope I can work on managing a recovery,” Fracassa said, adding that the pandemic has resulted in a significant decline for Timken’s customers.
The political climate in the US is another concern for CFOs, while trading, which was a major concern around this time last year, did not make it onto the list of major pain points for chief financial officers, Graham said. However, executives cited supply chain issues as one area of potential concern.
Other concerns that finance chiefs had earlier in the year, such as access to cash and liquidity, appear to be easing, according to Duke’s survey. Almost three-quarters of the companies surveyed said they hadn’t applied for a new loan in the current quarter, compared with around 50% in the second quarter.
Nearly 60% of the companies surveyed said that due to the coronavirus pandemic, they automated part of their business or operations, accelerating a pre-existing trend, Graham said.
Large companies in particular are increasing spending to replace the low-skilled with technology, while smaller companies often lack the budget to do so, he said. “When you’re a small business, it’s harder to move people,” said Graham.
Write to Nina Trentmann at Nina.Trentmann@wsj.com
(END) Dow Jones Newswires
Dec 22, 2020 9:14 AM ET (2:14 PM GMT)
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