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In a recent macroblog post, we shared some results of a joint national survey that is an ongoing collaboration between the Atlanta Fed, Nick Bloom of Stanford University, and Steve Davis of the University of Chicago, and Jose Barrero of Stanford University. (By the way, we're planning on calling this work the "Survey of Business Executives," or SBE.).
In mid-November, we posed this question to our panel of firms:
If passed in its current form, how would the Tax Cuts and Jobs Act affect your capital expenditures in 2018?
At the time, we (and perhaps others) were a little surprised to find that roughly two-thirds of respondents indicated that tax reform hasn't enticed them into changing their investment plans for 2018. Our initial interpretation was that the lack of an investment response by firms made it unlikely that we'd see a sharp acceleration in output growth in 2018.
Another interpretation of those results might be that firms were unwilling to speculate on how they'd respond to legislation that was not yet set in stone. Now that the ink has been dry on the bill for a while, we decided to ask again.
In our February survey—which was in the field from February 12 through February 23—we asked firms, "How has the recently enacted Tax Cuts and Jobs Act (TCJA) led you to revise your plans for capital expenditures in 2018?" The results shown below—restricted to the 218 firms that responded in both November 2017 and February 2018—suggest that, if anything, these firms have revised down their expectations for this year:
You may be thinking that perhaps firms had already set their capital expenditure plans for 2018, so asking about changes in firms' 2018 plans isn't too revealing—which is why we asked them about their 2019 plans as well. The results (showing all 272 responses in February) are not statistically different from their 2018 response. Roughly three-quarters of firms don't plan to change their capital expenditure plans in 2019 as a result of the TCJA:
These results contain some nuance. It seems that larger firms (those with more than 500 employees) responded more favorably to the tax reform. But it is still the case that the typical (or median) large firm has not revised its 2019 capex plans in response to tax changes.
Why the disparity between smaller and larger firms? We're not sure yet—but we have an inkling. In a separate survey we had in the field in February—the Business Inflation Expectations (BIE) survey—we asked Sixth District firms to identify their tax reporting structure and whether or not they expected to see a reduction in their tax bill as a result of the TCJA. Larger firms—which are more likely to be organized as C corporations—appear to be more sure of the TCJA's impact on their bottom lines. Conversely, smaller "pass-through" entities appear to be less certain of its impact, as shown here:
For now, we're sticking with our initial assessment that the potential for a sharp acceleration in near-term output growth is limited. However, there is some upside risk to that view if more pass-through entities start to see significantly smaller tax bills as a result of the TCJA.