CEO Confidence “Good” in May

CEO CONFIDENCE INDEX, MAY 2014: CEOs rated their expectations at 6.16 out of a possible 10, indicating that they believe business conditions will be “good” a year from now.

May 20 2014 by

The CEO Confidence Index, Chief Executive’s monthly gauge of CEOs’ expectations for business conditions over the next 12 months, rose 1.2 percent in May compared to the prior month. CEOs rated their expectations at 6.16 out of a possible 10, indicating that they believe business conditions will be “good” a year from now. (Six corresponds to a rating of “good” in the survey CEOs complete each month).

The rating of current conditions also rose 1.2 percent from April, landing at 5.82 out of 10. A year ago this time, CEOs rated their expectations for conditions now to be a 5.86, proving that they have been prescient in anticipating improvements in business conditions. Current conditions have not been rated above a six since September of 2008. This optimism indicates a true belief that business conditions have turned a corner and we are on the path to pre-recession conditions in the eyes of CEOs.

This positive outlook was not just at the highest level for overall business conditions. Looking at the data for individual improvement at the CEOs’ own firms, we see a marked increase in expectations compared to a year ago. In May of 2013, only 33.7 percent of CEOs expected to increase their number of employees over the next year. In May of 2014, this figure has jumped dramatically to 50 percent—a 48.3 percent increase from last year. Similarly, two-thirds of CEOs were anticipating an increase in revenue last year, compared to more than 76 percent expecting growth in revenue this year. Expectations for increase in capital expenditures also improved 5.2 percent from last year, but this number is still relatively low, with only 48.6 percent of CEOs expecting to increase their capex over the next 12 months.

Comments we received from CEOs still showed a lot of pessimism and concern with government uncertainty, regulatory burdens and foreign relations issues. Many CEOs believe these external factors could affect business conditions dramatically, as well as the prospects for their own firms. One consistent thread from CEOs who are more optimistic about business conditions is comfort with constant change. It seems that only by factoring uncertainty and constant change into the business model can CEOs assuage their concerns about macro conditions.

The CEO of a commercial printing company provided insight into how his firm and some competitors have been able to weather the storm: “Those who have transformed to a different business model will thrive. Our business is now driven by technology that adds considerable value to our customers’ marketing and communications campaigns. The old maxim, ‘change or die’ has never been more true than today in our industry.”

“Demand is tied directly to the performance of our clients,” noted the CEO of a middle-market, professional-services firm. “Our clients in manufacturing, high tech and health care are generally improving revenues, although holding in check employment growth and capital expenditures. There continues to be a ‘lid’ on the economy despite favorable factors. We have used this time to increase investments in technology and talent training to improve efficiencies in service delivery. While revenue has grown, we, too, have checked our headcount growth. Our firm is back from the 2008/9 recession, but we continue to crawl and not walk our way back.”