CEO optimism

CEO confidence was up slightly in the third quarter, noting a slowing economic growth pace, but no evidence of a double dip recession, according to the Vistage CEO third quarter Confidence Index released Oct. 4.

Despite widespread recognition of the recent economic slowdown, CEOs were more confident in their firm’s ability to increase their revenues and profits in the year ahead, Vistage noted in a statement.

The Vistage Confidence Index edged upward to 95.1 in the 3rd quarter 2010 survey, from 94.4 in the 2nd quarter and 93.7 in the 1st quarter surveys of 2010. Although the gains have been small in the past six months, the Confidence Index was 12% above the year earlier level of 84.9. The survey of 1,845 respondents was conducted from Sept. 14-24.

However, virtually every CEO (92%) expects rising employee health care costs, and 57% of all CEOs expect those cost increases to be more than 10%. Two-thirds of all CEOs said that without the extension of the Bush tax cuts their businesses would be harmed, and nearly half (46%) reported continued unfavorable credit market conditions.

In response to a question about the upcoming elections, 62% of CEOs believe the Republicans will control the U.S. House of Representatives in January 2011.

“Since 2003, The Vistage CEO Confidence Index has proven to be a reliable predictor of year-on-year changes in the GDP as published by the U.S. Bureau of Economic Analysis. No double dip is good news, but healthcare, taxes, access to credit, and overall economic uncertainty remain obstacles to jumpstarting sustainable growth," Vistage CEO Rafael Pastor said in a statement.

OTHER INDEX RESULTS
• Slow Recovery Expected
Most of the improvements in expectations for economic growth were recorded by last year’s 3rd quarter, and since then expectations have moved mostly sideward, improving a bit in the latest survey following a similar small decline in the prior quarter. Slower than potential growth was expected, not a double dip recession. That said, it’s interesting to note that when asked, "If you had to do so today, would you start your business in the current economic climate?" 52% responded "no" or "not likely."

• Slow Gains in Employment
Firms were more predisposed to adding employees in the latest survey than any other time since the start of 2008. Plans to expand their workforce were reported by 46% of all CEOs in the 3rd quarter survey, up from 39% a year ago. Nonetheless, fewer firms planned additions to their payrolls than any time prior to the 2008-09 recession. Uncertainty about the level of future sales as well as concerns about the costs of new health care regulations continued to hold hiring plans at lower levels.

• Revenues and Profits Slowly Improve
Revenue growth was expected by two-thirds of all firms in the 3rd quarter 2010 survey, unchanged from the prior quarter, but about twice as high as the low recorded in late 2008. Only 7% expected revenue declines, the lowest level in four years. Importantly, just 28% anticipated price increases, implying that most of the revenue gains would be due to increased sales volume. Moreover, given that only 12% expected smaller profits, tighter controls on costs also played a positive role. Rising profits were anticipated by 54% of all firms in both the 2nd and 3rd quarters, up from the recession low of 32% in late 2008. Future tax hikes, however, were still viewed as a threat to profits.

• Investment Plans Cautiously Improve
Planned investments have continued to improve slowly since reaching their lows in late 2008. In the 3rd quarter 2010 survey, 41% planned to increase their investment spending, up from 31% one year ago. Uncertainty about the strength and timing of future sales growth as well as concerns about future taxes, credit availability and the overall direction of economic policies have made firms more cautious about plans to expand their productive capacity.