Trump claimed the tax bill would lead to a huge boost in business spending -- but there's no sign of it yet

  • New tax cuts are unlikely to spur business investment to any large extent, according to a new survey conducted by the Atlanta Fed in conjuction with academics.
  • The survey shows some three-quarters of executives had made no spending plans at all in response to the passage of the tax cuts.
  • “We’re sticking with our initial assessment that the potential for a sharp acceleration in near-term output growth is limited,” Atlanta Fed economists write.

Republicans’ pitch on tax cuts was fairly clear: Lower rates on corporations would spur investment and create new jobs.

A new survey published by the Federal Reserve Bank of Atlanta in conjunction with Stanford University and University of Chicago Booth School economists shows the new policy measures have done little do bolster corporate investment plans.

“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 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.”(Emphasis added)

The chart below speaks for itself – some three-quarters of executives reported no changes in investment plans at all.

Figure 01 of 04Atlanta Fed

Looking further out into 2019, the results were even more lacklustre.

“It is still the case that the typical (or median) large firm has not revised its 2019 capex plans in response to tax changes,” Atlanta Fed economists write in their macroblog.

Given that backdrop, the economists write, “we’re sticking with our initial assessment that the potential for a sharp acceleration in near-term output growth is limited.”

Figure 02 of 04Atlanta Fed

Despite politicians’ pledges to help small businesses, “it seems that larger firms (those with more than 500 employees) responded more favourably 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,” the Atlanta Fed economists wrote.

Figure 03 of 04Atlanta Fed

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