CEO confidence in the economy is at its highest point since July 2007, shows Chief Executive magazine’s CEO Confidence Index, the nation’s leading monthly gauge of CEOs’ perceptions. The Index rose to 6.25 out of 10 in January – 6.9% higher than the previous month. Over 68% of the 377 CEOs surveyed rated their expectations for business conditions as at least ‘good.’
Many CEOs credited the extension of tax cuts and reduction of uncertainty over the next few years as reasons for this newfound optimism. “The decision by the White House to cooperate with Congress on extending many of the existing tax rates finally lifted the pall of uncertainty that had paralyzed decision making by the private sector,” commented one CEO. “Let’s hope that collaborative tone continues.”
Despite the promise borne of the recent legislative decisions, caution has not completely given way to confidence. “I do not believe the economy has a firm footing for growth,” says another Chief Executive. “Conservative business discipline will be required to navigate in these uncertain times. Government policies are going to continue to stunt investment and growth.”
As has proven to be the case since Obama came to the White House, uncertainty is the crippling factor for CEO confidence. Said one CEO, “We are in an environment where there is so much unknown – particularly in the regulatory world – that it is hard to be optimistic about the overall environment. Right now, business decisions have become about 90% limiting one’s exposure to a liability, rather than focusing on maximizing value for all parties involved.”
The vast majority of CEOs (nearly 77%) anticipate revenue growth in their businesses over the coming year, along with over 70% anticipating profit growth. Despite these optimistic predictions, more than half of the CEOs surveyed expect to have the same or fewer employees a year from now.
“Although it appears with the continuation of the Bush tax cuts there is a general euphoria in the market about growth expectations, I am proceeding cautiously and not hiring nor expanding,” said one CEO who is expecting both revenue and profit growth – but not planning to add employees nor raise capital expenditures at his firm.
CEOs of larger firms are more optimistic on average than their counterparts at the smaller end of the scale. Leaders of companies with over a $1 billion in revenues rated their expectations for business conditions at 6.50 out of 10, compared to 5.79 for businesses in the $25-50 million revenue range. Interestingly, CEOs of companies with revenues lower than $5 million were the second most optimistic cohort, rating their expectations at an average of 6.36.
Though confidence in overall business conditions remains on the rise, CEOs’ optimism is still markedly cautious. As one CEO put it, “There is a lot of money in mattresses, but things have got to look a bit brighter for that to come out.”
CEO Confidence Index – January 2011
|December 2010||January 2011||Monthly Change|
|CEO Confidence Index||5.85||6.25||+ 6.9%|
What do 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?