CEOs Optimistic for Own Firm Gains Despite Less Favourable Views Towards Economic Environment

CEOs held more optimistic expectations for gains by their own firms in the Q3 2013 Vistage CEO Confidence Index Survey, even though they held less favorable views about the overall economic environment. Despite the debates about federal spending and the debt ceiling as well as prospective changes in monetary policies (the survey was conducted prior to the Fed’s recent surprise announcement), firms expressed an increasing level of confidence that prospects for their firms would steadily improve during the year ahead. The Vistage CEO Confidence Index was 97.8 in the 3rd quarter 2013 survey, just above the 96.7 in the 2nd quarter survey, but substantially above the 89.0 recorded in last year’s 3rd quarter

To be sure, two-thirds of all CEOs believed that their business would ultimately suffer from the burden of increasing federal debt, but nonetheless expressed greater confidence in all aspects of their business. CEOs expected higher revenues and profits, and were more willing to boost fixed investments and hiring. Seven-in-ten CEOs would prefer legislation that balanced increases in the debt ceiling with reductions in federal spending.

Economy Weakens Slightly. In the 3rd quarter 2013 survey, 46% reported that the economy had recently improved, down from 53% last quarter, but still well above last year’s 27% or the 18% recorded two years ago during the last budget battle. Just 8% of all firms thought economic conditions had already worsened. When asked about economic prospects for the year ahead, 30% expected an improving economy, down slightly from 33% one quarter ago and 36% two quarters ago. While no diminution of optimistic prospects is welcome, most firms believe the existing economic strength is sufficient to overcome the budget battles. Indeed, the recent falloff has been quite small compared to the sharp declines amid past budget debates.

Higher Sales and Profits. Higher sales revenues were anticipated by 71% of all firms in the 3rd quarter 2013 survey, up from 68% last quarter and 66% a year ago. Just 5% expected revenues to decline, barely above the all-time low of 4% last recorded in 2006. Expanding profits were anticipated by 54% of all firms in the 3rd quarter, the highest figure recorded since the start of 2012. Declining profits were expected by just 11% in the latest survey. Managing costs were still cited by one-in-four firms as their biggest challenge, with another one-in-four mentioning customer retention as the most significant challenge. Overall, sales and profit expectations were quite favorable indicating that firms have adapted to a slow growth economy.

Hiring Plans Expand. Expanding their payrolls during the year ahead was planned by 54% of all firms in the 3rd quarter 2013 survey, up from 52% last quarter and 49% a year ago. Net declines in employees were expected by just 6%. The hiring, training and retention of employees remains a critical task for firms, cited by one-in-four firms. When asked about proposals to raise the federal minimum wage to $9 or $10an hour, the balance of opinion was quite negative: 40% reported the increase would have a negative impact on the growth of their business. Half of all firms said the hike would not have a significant impact on growth, perhaps due to the higher wages already paid to their employees. A positive impact on growth was expected by 7% of firms, perhaps due to the higher expected incomes of the customers of these firms.

Robust Investment Plans. Planned increases in investments in new plant and equipment were reported by 43% in the 3rd quarter 2013 survey, above last quarter’s 41% and last year’s 36%. Reductions in fixed investments during the year ahead were expected by just 11% in the recent survey, down from 12% last quarter and 15% a year ago. Importantly, just 6% reported that servicing or obtaining new credit lines was a significant challenge, indicating a return to more normal banking and financial relationships. The Fed decision not to begin tapering is likely to keep interest costs low on new investments, at least temporarily.


From : Visage International.



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