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CEO Confidence Index July 2006

Hiring Confidence Off From High In June 2004 CEOs Weigh In on Alternative Energy & Global Warming; 60% Support Market Solutions
Watch the July Confidence Index on CNBC’s Morning Call. 

The Chief Executive CEO Confidence Index fell by 3.1 points in July, extending last month’s concerns when the leading economic indicator fell by 7.7 points. The Index currently stands at 162.6 according to 237 top executives surveyed this month. All component indices of the index, which focus on CEO sentiment in specific areas, fell this month as well. Polling was conducted prior to the recent military escalation between Israel and Lebanon.

Employment confidence led the pack of component losses this month, falling by 4.7 points to 181.5. Of those responding, 14% said they expect employment to decrease over the next quarter. While 39% of CEOs expect employment to increase over the next quarter, 72% of CEOs surveyed expected employment to increase similarly back in June of 2004. The Future Confidence Index was the only other component index that fell by more than the overall Index. It fell by 3.2 points to 136.4.

The Investment Conditions Index fell by 2.5 points to 131.8. It currently stands as the lowest component index. Of those surveyed, 11% expect capital spending to decrease at their company over the next quarter. Its marked divergence from other indices began in early 2004 when the Federal Reserve began its continuing campaign of interest rate hikes. Said one CEO, “It appears the FED is bound and determined to ignore technology & productivity gains and send us back into a recession.  Their fear of inflation is exaggerated and causing a great deal of anxiety for the economy at large.”

 Chief Executive also asked responding executives a host of questions regarding alternative energy in the wake of record energy costs. When asked whether solutions to our energy problems should come from the Market, the Government, or Academia, over 60% responded in favor of market solutions. Said executive Merrick Andlinger, “[the] government must provide a level playing field to price externalities so that market forces can work. Conventional oil & gas is significantly subsidized, and the environmental and energy security impact is not priced into the cost/barrel.” Edward M. Kopko, President and CEO of the Chief Executive Group, said “CEOs are aware and concerned about the environmental issues facing us today. They feel the best way to make all of our lives better is to employ the market to find ingenious solutions to an age-old problem.”

In efforts to pinpoint from where these market solutions should come, CEOs were asked whether we should increase the use of Nuclear Energy. Over three quarters (77%) of those asked responded affirmatively. Voicing the opinion of many, Terry Gaab of ABHCO noted, “We must develop nuclear power. It is the most cost effective solution…”

CEOs were also asked to list their greatest concerns from a list of common concerns relating to the environment. Reflecting the complicated nature of energy policy, the top three CEO concerns were “Global warming,” “Pollution and air quality,” and the “Poor economic tradeoff between developing renewable energy and investment.” While CEOs listed their greatest concern as global warming, there was considerable debate relayed via their comments, where both sides of the debate were strongly voiced. Some CEOs voiced their concerns along the following lines: “Anybody who’s still skeptical about global warming (whether natural, man-induced, or a combination) is just in denial.” Others, however, feel the debate is far from decided, as typified by the following quote: “Global climate shifts are cyclical. Just 20 years ago environmentalists were talking about global cooling.” Summing up split attitudes, one CEO opined thusly: “You can be environmentally concerned but not hysterical.  You also can be conscious of the environment but be pragmatic in choices.”

When asked which industries are most challenged by the environmental movement, CEOs cited the Energy sector first, followed by the Auto and Transportation industries (see below for tables of complete results).

The CEO Confidence Index normally is released on the third Tuesday of each month.  For additional information regarding the confidence of public- and private-company CEOs, details about regional CEO attitudes on employment, investment and business conditions, as well as confidence differences between service and non-service industry CEOs.

Chief Executive is a controlled circulation magazine that has been published since 1977. It reaches 42,000 chief executive officers and their peers, reaches a total readership of 170,000.  Chief Executive Group facilitates “Chief Executive of the Year,” a prestigious honor bestowed upon an outstanding corporate leader, nominated and selected by a group of his or her peers.  George David, Fred Smith, Hank Greenberg, Bill Gates, John Chambers, Michael Dell and Sandy Weill are just some of the leaders who have been honored during the award’s 20-year history.  Chief Executive also organizes roundtable meetings and conferences to foster opportunities for top corporate officers to discuss key subjects and share their experiences within a community of peers.  .

CEO Index, July 2006

Respondents: 237

  Jul-06 Change from Prev Month
 Ceo Index  162.6 (3.1)
 Current Confidence Index 201.3 (3.1)
 Future Confidence Index 136.4 (3.2)
 Business Condition Index 181.4 (2.4)
 Invest Confidence Index 131.8 (2.5)
 Employment Confidence Index 181.5 (4.7)

What is the best way to develop renewable and/or environmentally friendly energy solutions?

 The market 60.6%
 The U.S. Government 36.4%
 Academia 3.0%

Which industries face the largest challenge as it relates to the environmental movement?

Energy 30.9%
Auto 19.7%
Transportation 12.8%
Plastics and Chemicals 12.5%
Manufacturing 9.8%
Agriculture 3.4%
Building and Construction 3.1%
Aviation 2.0%
Real Estate 1.8%
Pharmaceutical 1.1%

What is your biggest concern about renewable energy and the green movement?

 Global warming (carbon emissions) 27%
 Poor economic tradeoff between developing renewable energy and investment 21%
 Development of renewable sources of energy 19%
 Costly regulations in response to environmental activists 3%
 Depletion of oil reserves 6%
 Pollution and air quality 24%
 Incorrect analysis or exaggeration of environmental issues 0%

Do you think it is time for the United States to increase the use of nuclear power?

 Yes 77%
 No 23%

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