CFOs are more optimistic about the future of the U.S. economy than they’ve been at any time this decade, according to a survey out this morning from Deloitte. The CFO quarterly optimism index hit its highest level since starting in 2010, and was up substantially from the fourth quarter. “This, by leaps and bounds, was the most optimistic survey, across many measures, that we have ever seen,” said Sanford Cockrell III, who heads Deloitte’s global CFO program.
And here’s the most interesting finding: CFOs say they plan to spend their tax windfalls mostly on higher investment in the U.S., as well as on R&D and higher wages. They expressed a strong bias toward revenue growth over cost reduction (64% vs. 18%), and an equally strong bias toward investing cash rather than returning it to shareholders (57% to 14%).
Critics of the corporate tax cut predicted the tax windfall would mostly go to fund share buybacks and dividends, citing studies of the 2004 tax break as precedent. Others argued the cut was badly timed from a macroeconomic perspective—providing a large dose of stimulus late in the business cycle, just as interest rates are rising and fears of overheating are emerging. And indeed, the CFOs surveyed cited “new concerns about rising government debt.”
But the survey results suggest that while the tax cut may have been badly timed from a macroeconomic perspective, it was well-timed from a microeconomic perspective. With the economy strong, confidence high, and labor markets tight, companies seem more willing to open their wallets—with increased domestic investment “far and away” the top expected use of repatriated taxes, and increased pay necessary in the growing competition for talent. “Companies have pent-up demand,” Cockrell said, “and a need to retool and spend money on capital projects.”
The survey respondents included 155 CFOs of North American companies, mostly with over $1 billion in revenues. The results were gathered Feb. 12-23, so before the most recent declines in the stock market and before the latest moves in the U.S.-China trade war. Careful readers of CEO Daily will note Deloitte is also the current sponsor of this newsletter. We love them for that; but that’s not why we are reporting on this survey. It’s the best and most reliable survey of CFOs around.
More news below.
Trade War Latest
China has announced a new raft of tariffs on U.S. products, including soybeans and cars. The move targets 106 products worth $50 billion annually. For now, these new tariffs have no official start date. This appears to be retaliation for the White House’s Tuesday announcement that the U.S. aims to slap tariffs on Chinese products in the robotics, tech and aerospace sectors. U.S. stock futures fell on the latest news. CNBC
Apple has snapped up John Giannandrea, Google’s outgoing search and artificial intelligence engineering chief, to head up its own AI strategy. Apple has a lot of work to do on that front, chiefly in making Siri a more competitive virtual assistant in the new age of smart home speakers. Giannandrea clearly knows the competition, but he will have to figure out how to build a better AI while respecting people’s data privacy, as Apple has promised. Fortune
Advertising giant WPP is investigating its CEO, Martin Sorrell, over allegations of “improper personal behavior” and the misuse of company assets. “The message for our people and clients is one of business as usual within our operating companies and client teams. Our work for clients is unaffected and continues uninterrupted,” the company said in an internal memo. Sorrell’s position is already less-than-solid, due to WPP’s recent lackluster performance. Wall Street Journal
Spotify’s long-awaited IPO saw shares open at $165.90, well above the $132 guide price set by the NYSE. However, they ended up closing at $149.01. Spotify ran an unusual offering—rather than issuing new shares, it got early investors to sell theirs. Around 30 million shares were sold yesterday, and Spotify said the price was higher than that seen in recent private transactions. BBC
Around the Water Cooler
Police are trying to nail down Nasim Aghdam’s motives for shooting people at YouTube’s headquarters yesterday, but it may well relate to the woman’s antipathy toward the company’s content moderation policies. On a personal website, she claimed YouTube was trying to suppress her videos (about issues such as veganism, animal rights and exercise routines) and removing her ability to make revenues from her content. Fortune
The E-Commerce Effect
Boeing is reportedly considering the conversion of used 777 passenger jets into cargo planes in order to capitalize on the boom in e-commerce-related shipments. Air freight is increasingly in demand, and logistics companies are looking for cheaper ways to transport goods. There’s a risk of Boeing cannibalizing its sales of new freighters, but the company says first-quarter sales of those new jets were more than double the total for the whole of last year. Bloomberg
The Washington Post has a piece on the legacy of Steven Bochco, the legendary TV producer who passed away on Sunday. As it points out, Bochco’s series may have been hugely influential, with a devoted audience, but few garnered massive audience figures. Today, in the age of Netflix, his approach has become the norm. It notes: “Entire companies now base their model on what might be called the Bochco School—basically, the idea of a narrow phenomenon.” Washington Post
50 Years After MLK
It’s half a century since the assassination of Martin Luther King, Jr. As University of Texas associate professor Richard J. Reddick writes for Fortune, King “unflinchingly held a moral mirror to the nation’s face.” He continues: “Moral courage is not always popular, and King paid the ultimate price for taking a stand against injustice. Today, we should reflect on his sacrifice and shoulder the moral burden of combating racial, gender, economic, and all other forms of inequality—however unpopular our stand might be—to create a more just society.” Fortune