Boosted by Tax Reform, Businesses Increased Capital Investments by 39 Percent in the First Quarter of 2018

By April 27, 2018Shopfloor Main

Manufacturers campaigned hard for tax reform last year, promising that the historic law would accelerate growth in wages, investments and job creation.

There have been some doubters. But early data are in, and so far, it is looking like U.S. businesses are keeping their promise.

U.S. GDP grew 2.3 percent in the first quarter of 2018, a stronger-than-expected rate supported by big growth in business investment. Tax reform and other pro-growth policies are allowing businesses to make the investments they need in new factories, equipment and employees. A new report from UBS AG confirms that trend, finding a 39 percent increase in capital expenditures among surveyed businesses in the first quarter of 2018, the fastest growth in seven years:

After months of heated debate over whether companies would hand the biggest tax break in three decades back to shareholders or reinvest it in their businesses, there’s finally some hard data.

Among the 130 companies in the S&P 500 that have reported results in this earnings season, capital spending increased by 39 percent, the fastest rate in seven years, data compiled by UBS AG show. Meanwhile, returns to shareholders are growing at a much slower pace, with net buybacks rising 16 percent. Dividends saw an 11 percent boost.

The data is a fresh rebuttal to those who warned that hundreds of billions of dollars of tax relief will head directly to the stock market and be harvested by shareholders already fattened by a nine-year bull market. While buybacks indeed got a boost from the windfall, companies increased the rate at which they unleash cash for building factories and upgrading equipment, a strategy that’s preferred by investors for the benefit of future growth.

Manufacturers are reinvesting their tax reform savings back into their facilities, their workforce and their communities. The National Association of Manufacturers “Keeping Our Promise” campaign is highlighting these stories from manufacturers across America. Ariel Corporation in Ohio is using its tax reform savings to offer employees a raise and boost funding for retirement programs. Centennial Bolt in Colorado is using its tax reform savings to hire 30 percent more employees.

Read more about how manufacturers are fulfilling their promises and taking advantage of tax reform here.

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