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Corporate America Suddenly Darkens Outlook, Slashes Hiring and Cap-Ex Plans, But Gooses Stock Buybacks

The word “gloomier” inconveniently showed up in a Reuters headline that described how the CEOs of the Business Roundtable – one of the thermometers into the brains of corporate America – felt about sales, employment, and capital expenditures. Yet, “gloomier” or not, these CEOs run companies that spend near record amounts, not on productive uses such as capital expenditures or hiring more people to push revenues to the next level, but on buying back their own shares.

The Business Roundtable is an association of CEOs of the largest corporations in the US that account for “more than a third of the total value of the US stock market,” according to its website. On its agenda: lower corporate taxes (tax credits!), more immigration of cheap labor, and trade – the big trade agreements currently being negotiated in all secrecy [my take from late last year, though resistance has grown since…. Coming Soon: Corporate Tools To Hollow Out National Sovereignty].

Or, as it says so eloquently, “working to promote sound public policy and a thriving US economy.”

But the BRT results didn’t speak of a thriving US economy. “CEO plans for investment, hiring and sales over the next six months decreased, with employment plans declining the most,” the survey stated. And it wasn’t pretty:

  • The least bad was the sales index, which dropped 4.5 points to 116.4, with 20% of the CEOs expecting sales to stagnate and with 7% expecting sales declines.
  • Capital expenditures looked worse. They would increase at only 39% of the companies, down from 44% in the prior quarter; they’d stagnate at 51% of the companies, up from 41% in Q2; and they’d get slashed at 10% of the companies, up from 8%. It dragged the cap-ex index down by 6.8 points to 79.1.
  • And US employment? Only 34% expected to increase employment in the US, down sharply from 43% in Q2; but 20% would slash payrolls, up from 14% in Q2. And the sub-index plunged 15.7 points to 63.5.

What would it take to reverse the slide? At this point, BRT becomes a lobbying group. “We believe Congress and the Administration must focus on policies that drive economic growth, including tax reform, immigration reform, trade expansion, and long-term fiscal stability,” BRT Chairman and AT&T CEO Randall Stephenson said in the statement, directed straight at Washington.

But what are these CEOs doing instead of hiring and training people and investing in capital expenditures, crucial and sorely missing ingredients in the economy?

Turns out, 740 corporations have authorized share buyback programs through August, the most for this period since 2008, just before the whole construct collapsed. And according to research cited by the Wall Street Journal, they spent $338 billion during the first half on buying back shares, the most since 2007.

As overall trading volume is getting more and more anemic, these buybacks make up an ever larger proportion of total trading.

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