The CEO Confidence Index, Chief Executive’s monthly gauge of CEOs’ expectations for overall business conditions over the next twelve months, fell 3.7% in July to 5.36 out of a possible 10. This is the second consecutive month the Index has declined, making it four out of the last five months with a decrease in CEO confidence in the future of business conditions. This plunge comes after 2012 started with two months of increasing confidence. The Index has fallen a whopping 11.1% below its 2012 high of 6.03 in February.
CEOs rated current overall business conditions at 4.82 out of 10, which is a decrease of 3.7% from June and a 10.2% decrease since May’s rating of 5.37. CEOs are still optimistic that business conditions over the coming year will be better than they are currently, but the optimism is cautious at best.
In a trend that has continued to gain momentum over the past two years, comments from our CEO respondents indicate that so much of their outlook for business conditions depends on the outcome of the upcoming Presidential election. Uncertainty around tax policies and the impact of the new healthcare legislation are stymieing investment and strategic planning, according to our respondents. (Please see a collection of comments we received from CEO respondents at the end of the article).
Small businesses appear to have a more negative outlook for overall business conditions. CEOs of companies with under $25 million in annual revenue rated their expectations for business conditions over the next twelve months a 5.18 out of 10 – 3.4% lower than the overall Index rating. This is 4.4% below the 5.42 rating given by CEOs of companies with $100 million or more in annual revenue.
Only 30.2% of the respondents expect to increase the number of employees in their firm over the next 12 months, and 21.5% expect to decrease their workforce. Similarly, just 37.2% of CEOs expect to increase their capital expenditures over that time frame.
Despite the pessimistic expectations for employment growth and internal investment, 62.6% of CEOs are anticipating increases in revenue and 53.8% expect to see an increase in profits over the next year. Nineteen percent anticipate decreases in revenue along with 25.5% who expect a decrease in profits.
Overall, CEOs are expecting conditions to improve over the next year, but this appears to be contingent upon uncertainty being settled with a more business-friendly administration and clarity on the effect of the health care law and upcoming tax policy changes.
Selected Comments from CEO Survey Respondents
“There is so much uncertainty now about future government fiscal and monetary policy that everybody is hunkered down, waiting to see what will happen. This is exacerbated by the growing fiscal chaos in the Euro zone and the weakening of far eastern markets. All affect sales, revenues, and future prospects adversely.”
“We need less uncertainty. Right now the uncertainty level is high and is a drag on the economy. This will continue into early 2013 and the point of stabilization depends upon the outcome of the election.”
“If Obama is re-elected, I expect business conditions to worsen. We need to have an overhaul in Washington, rein in spending, cut the size of government and reduce regulations on business; these changes can lead to improved business conditions.”
“If the administration changes, then there could be significant improvement. If Obama gets re-elected, then the economy will take the second dip.”
“The uncertainty of tax increases and the outcome of the upcoming election continue to weigh heavily on confidence.”
“Much will be determined by the national election. The current administration is an economic disaster, and the health bill will shut down many small business employment prospects.”
“I have little to no confidence in projecting the next twelve months with Obama in office. Therefore, I’ll withhold making any additions to staff or other investments. What I will project is if Obama is re-elected, the economy will ‘tank’; if Romney is elected the economy will ‘explode’ because people will know what they can expect and begin to satisfy pent-up demand.”
“We are not going to do anything but tread water until we see the impact of Obamacare. If what we have been told turns out to be true, we will soon be downsizing our staff significantly even if the results are a smaller, less robust operation. Between Obamacare and the multitude of government regulations that we are now facing, there is little to no enthusiasm for growth.”
“Due to increasing uncertainty, operating a business in the current environment is very much akin to walking blindfolded in a mine field, which is only done very slowly, carefully and cautiously, one step at a time.”
CEO Confidence Index — July 2012
|June 2012||July 2012||Monthly Change|
|CEO Confidence Index||5.56||5.36||-3.7%|
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?