Signs of Optimisim

In a recent survey through Bank of America there is a generally positive and encouraging outlook for 2011 according to CFO’s. As global credit markets ease, CFO’s are taking notice.  Over 60% of CFO’s are expecting revenue growth within their companies. With manufacturing and services at the forefront of the robust turnaround, many companies are looking to hire additional employees.  Along with the new hires come additional R&D expenses, which will most likely push capital expenditures and borrowing needs comparable to pre-recession levels.

The majority of companies will seek financing this year.  In terms of borrowing 24% of CFO’s believe their needs will increase. 

*Source:  Monitor Daily Feb. 2011

CEO's say that they will increase capital spending

In terms of the overall U.S. economy, member CEOs estimate real GDP will grow by 2.9% in 2011, an increase from the 2.5% expected in the fourth quarter.
According to the survey, 92% of CEOs expect their companies’ sales to increase in the next six months, a 12% increase from the fourth quarter of 2010. Meanwhile, 62% expect their companies’ capital spending to increase, compared to 59% in the fourth quarter, while 52% expect their companies to hire more workers, up from 45% last quarter.
The survey was completed between Feb. 28 and March 18 and responses were received from 142 member CEOs.

http://blogs.wsj.com/economics/2011/03/30/ceos-expect-to-boost-sales-hiring-spending/?mod=WSJBlog&mod=marketbeat#

Capital Spending on the Rise

As Equipment Purchasing Surges, Unemployment Remains High

Many companies are ramping up equipment purchases to boost productivity, reinforcing a gap between capital spending and employment in the United States.
Corporate investment will rise 11 percent this year as sales pick up, following a 15 percent gain in 2010, according to “Man vs. Machine,” a Feb. 2 report from Bank of America Merrill Lynch. Employment will grow just 1.7 percent, after a 0.7 percent increase last year.
Inventory rebuilding, low borrowing costs and government policies that include a new tax break on equipment purchases are powerful spurs for capital spending, said Neil Dutta, the Bank of America economist behind the report. The job market lacks such drivers and will form a “mediocre” underpinning for household spending, the biggest part of gross domestic product, he said.
The Institute for Supply Management’s manufacturing index has risen for seven consecutive months, surging in February to the highest level since May 2004. Although the labor market is “improving gradually,” unemployment remains “elevated,” according to the Federal Reserve. The jobless rate could hold at 8.9 percent in March for a second month, the lowest since April 2009, based on the median forecast in a Bloomberg News survey ahead of Labor Department figures due April 1.

Cash Hoards are Shrinking at S&P 500 for the First Time since '09 as Obama Continues to Woo CEOs

According to Bloomberg Corporate America is putting its cash hoard back to work.
In the first decline since mid-2009, Standard & Poor’s 500 companies reduced cash and short-term investments to $2.4 trillion from a record $2.46 trillion, according to data Bloomberg compiled from their most recent quarterly reports. Capital spending increased $22.3 billion, the biggest quarter- to-quarter jump since the end of 2004, to $142.8 billion, the highest level in two years.
Budgets are rising for new plants, distribution centers and stores from S&P bellwethers Cisco Systems Inc., General Electric Co. and Coca-Cola Co. While some of the money is being spent abroad, company officials say they are opening the purse strings at home now too. A rebound in economic demand, President Barack Obama’s efforts this year to court business leaders, and Republican gains in Congress have helped build confidence to invest and start adding jobs, executives and investors said.
U.S. companies’ accumulated record cash last year after they slashed spending shut factories and fired workers in 2008 and 2009 to cope with the worst recession since the 1930s.
The dearth of investment took a toll on jobs, with the unemployment rate averaging 9.6 percent in 2010. An increase in spending this year may help lower the rate to 9.2 percent, the average estimate of 87 economists in a Bloomberg poll.

Political Climate

Companies held their cash partly on concern that health- care mandates and increased financial regulation would add costs to their bottom line.  Business confidence has improved and is contributing to some increased risk appetite. The economy last year grew 2.9 percent after shrinking 2.6 percent in 2009.

Profit, Not Presidents

Obama backed a compromise to extend tax breaks that were set to expire in December and a measure to accelerate equipment depreciation. He has countered executives’ criticism with a call to lower corporate taxes, freeze federal spending and review “outdated and unnecessary” regulations. In return, at a Feb. 7 speech to the U.S. Chamber of Commerce, he asked companies to invest and create more jobs at home.

 ‘Good for the Economy’

The Bloomberg data examined the most recent quarterly figures reported by S&P 500 companies, regardless of the specific calendar period. About 75 percent have reported so far in the current cycle, and final totals may change. The S&P 500 increased 12.8 percent in 2010, compared with 11 percent for the Dow Jones Industrial Average.

http://www.bloomberg.com/news/print/2011-02-16/cash-hoards-shrink-at-s-p-500-for-first-time-since-09-as-obama-woos-ceos.html

A Bonus for Companies Using Bonus Depreciation

The new Job Creation Act signed last year gives companies a bigger depreciation benefit, and more time to use it.

Businesses got more breathing room to capture a bonus depreciation deduction when President Obama signed the new tax and jobs bill into law last year. In general, the revamped and substantially liberalized provisions contained in The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 extend the Bush tax cuts for an additional two years, in most cases.

Further, the law extends and expands the additional first-year depreciation to equal 100% — rather than 50% — of the cost of qualified property placed in service after September 8, 2010, and before January 1, 2012. (September 8 is the date on which President Obama first broached the subject of "full expensing" of the cost of qualified property.) It also extends some similar tax benefits as far out as 2014.

The thinking behind the extension was to continue to spur capital spending by U.S. companies. For the past several years, the tax code has allowed for enhanced depreciation deductions with respect to tangible and intangible property, as long as the items met certain requirements. One of the more popular deductions related to this kind of qualified property was the "first-year depreciation" deduction. Under the older rules, an additional first-year depreciation deduction was allowed in an amount equal to 50% of the adjusted basis of qualified property that was placed in service during a specified period. That deduction has been raised to 100% under the new rules, and the time line has been expanded.

While some critical dates have changed under the new law, the mechanics of the deduction remain the same. For instance, the rules apply for both regular tax and alternative minimum tax purposes, but not for purposes of computing earnings and profits (see Section 168(k) of the Internal Revenue Code). In addition, the property must fall into one of the following four categories: (1) property to which the MACRS depreciation system applies (most tangible personal property) with an "applicable recovery period" of 20 years or less; (2) water utility property; (3) computer software (if either "off-the-shelf" or not acquired in a transaction involving the acquisition of assets constituting a business or a substantial portion thereof); or (4) qualified leasehold property that meets three criteria:
• the original use of the property must commence with the taxpayer after December 31, 2007; and
• the taxpayer must purchase the property within the "applicable time period" (after 2007 and before 2011 under the old law; but before 2013 under the new law); and;
• the property must be placed in service after 2007 and before 2011 under the old law, but before 2013 under the new law (or before 2014 in the case of certain long-lived property and transportation property).

Read entire article at CFO.com

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Employment & Capital Spending Outlooks Strengthen

January 2011 survey conducted by the National Association for Business Economics (NABE) confirms that the underpinnings of the U.S. economy continue to strengthen. The survey notes that U.S. companies' employment outlook improved to a 12-year high this quarter. On capital spending, 62% of respondents said they planned to boost capital spending, up from 48% last quarter.

Shawn DuBravac, chief economist of the Consumer Electronics Association said, "The number of firms expressing positive hiring plans is at a level not seen in over a decade - a sign of improving labor-market dynamics. Supporting these hiring plans, industry demand continues to move higher, and profit margins are expanding." DuBracac added, "Firms are increasing their plans for future capital spending. A majority of respondents anticipate no increase or decrease in investment spending or employment in response to new tax policies, suggesting business decisions are being driven by the fundamentals of an improving economy."

Survey highlights included the following:

·  Expectations for economic growth have improved significantly. Over the last quarter, NABE panelists have become more optimistic. A majority (62%) assumes real GDP growth of 2% to 3% in 2011, and one in five panelists is building business plans based on an outlook of 3% to 4% economic growth.

·  Employment continues to improve, with 34% of firms reporting larger workforces compared to only 13% a year ago. The share of firms cutting jobs shrank, from an average of 13% over the past three quarters to 6% currently. The current NRI is the highest level it has been since 1998. The hiring outlook for the next six months also looks more robust - 42% of respondents indicated their firms will be increasing employment, up from 39% last quarter and 29% in January 2010. The employment outlook NRI hit a 12-year high.

·  The share of firms increasing their capital spending from the previous quarter rose slightly from the prior survey to 38%, while only 6% of panelists reported cutbacks in their firms. Expectations for future capital spending improved significantly, with 62% of respondents reporting higher planned expenditures, up from 48% last quarter.

·  As for the expected impacts of the proposed 2011 tax package, more than half (53%) of the panelists, especially those from the goods-producing sector, anticipate a favorable impact on their firm's sales. In contrast, a majority of the respondents (60%) said they do not anticipate any increase or decrease in investment spending or employment in response to new tax policies.