The CEO Confidence Index, Chief Executive‘s monthly gauge of CEO expectations for overall business conditions over the next twelve months, dropped 6.6% in October to 2012’s new low: 5.11 out of a possible 10. It is apparent that September’s 2.5% rise to 5.47 was momentary; the October drop fits an overall downward trend in confidence that has pervaded most of the year.
As evidenced throughout the past few months, CEO confidence hinges largely on the results of this year’s presidential campaign. One, the head of a small professional services business, even wrote that his or her rating was “100% dependent on who gets elected president next month.”
Part of the reason for the drop in future confidence therefore seems to be the increased likelihood of President Obama’s re-election in our respondents’ eyes since last month. Many respondents commented that the future confidence ratings they elected “presume” the incumbent retains his office, and claimed that their responses on this metric would be 2 to 5 points higher if they were assured of a Romney victory. Only a few cited uncertainty about Congressional composition as a conditioning variable.
The importance of the presidential campaign to CEO opinion is reinforced by a small subset of our responses that was collected immediately after the first presidential debate, an event that is widely perceived to have improved Gov. Romney’s election prospects. This subset had almost 20% higher evaluations of future business prospects than responses collected prior to the debate.
The decline in optimism about future conditions over the last month mirrored a drop in the Current Confidence Index, an assessment of current business conditions, down 2.3% from September. At 4.71 out of a possible 10, it is now also at a low for 2012. Companies between $10 million and $1 billion in revenue last year were about 7% more optimistic about current and future conditions than their smaller and larger counterparts at each end of the revenue spectrum.
Slow, cautious growth surfaced as the predominant business expectation in respondent feedback. This qualitative evaluation matched the quantitative forecast solicited on our survey, which found that a majority or near-majority of respondents anticipates either zero change or less than 10% growth in the next twelve months within each measured category: revenues, profits, capital expenditures, and employees.
Some have already set their sights on how to deal with a new corporate reality. “The political and policy uncertainties have dampened the overall economic environment, but they have also created new opportunities,” commented Zachary Smulsk of Zale Transitions. “The challenge is that business planning is now like going to Las Vegas instead of Disneyland. The stakes are higher and fewer people will come away having a good time.”
Selected Comments from CEO Survey Respondents
“Ambiguity and deadlock in the capital remain the biggest discussion point with most of my CEO clients. They are making smart choices in the context of the environment that they have control over but are not making big bets until there is more clarity. The problem as I see it is there will not be additional clarity going forward – we must begin to learn to thrive in this environment and find ways to make a more aggressive and higher risk series of small bets to keep growing our businesses.”
“I’m a small business owner. We, the stakeholders, need to demand integrity from business leaders. Too many self-centered, greedy leaders have failed to be good stewards of their social responsibilities. I, for one, am sick of dissembling when clarity is called for, and the spineless behavior of too many boards. If leaders at all levels don’t make honesty and good stewardship priorities, the government will continue to encroach on us.”
“The most important matter in politics right now is the issue of divisiveness versus teamwork. Both parties have strengths and weaknesses, and both represent coalitions of non-aligned constituents. The current lack of ability in Washington to compromise towards a common solution is going to wreck our country if it continues. I place some fault with both parties, but the Tea Party and Grover Norquist have taken the problem to a whole new level.”
“Congress in general, and Congress with the administration (whether Romney or Obama wins) must choose to work together to find solutions that make significant short and long-term improvements for the health of this country. This includes financial, business, healthcare, foreign policy – and staying out of personal topics such as abortion, same sex marriage, etc.”
“Jobs drive everything about the economy. The Administration and Congress have to create an environment that stimulates job growth by reducing the ridiculous regulatory labrynth that businesses have to go through just to stay in business.”
“The only thing that causes our company to create jobs is demand. Not tax policy, or social policy. To the degree that demand is stimulated in a sustainable way is of the most interest to me.”
“Our President needs to work closely with Congress to develop effective policies to control and reduce our nation’s debt or it won’t matter who is elected in the future.”
“If Obama gets re-elected it’s over.”
“Under Obama we have a total and complete trainwreck on every issue. Romney, I am confident, would dramatically improve matters, particularly the economy. I just know he can and will surround himself with the best and the brightest.”
“Too much change too quick leaves an uncertain future which negates capital spending and the equivalent job creation.”
“In the US our ability, and enthusiasm, to compete globally has been significantly reduced by too much regulation here at home. Each little, well-intended new regulation, restriction or reporting requirement costs us in productivity. Each loss in productivity negatively impacts our product development ability. We all want to improve our working and living environment. However, we cannot forget that every change has a cost associated with it and we must make these changes in a manner that makes us stronger, not weaker.”
“We are headed towards recession and the Federal Reserve is out of bullets.”
“In a weak environment, there is a lot of difference between 2% growth and 7%. In fact, most growth is less than 15% even for very good companies. I think you need to restructure your scale.”
CEO Confidence Index — October 2012
|September 2012||October 2012||Monthly Change|
|CEO Confidence Index||5.47||5.11||-6.6%|
What do you expect overall business conditions to be like one year from now on a 1 -10 scale? (10 = Excellent)
What is your assessment of current overall business conditions on a 1-10 scale? (10 = Excellent)
Over the next 12 months, what changes do you forecast for your firm compared to the past 12 months?