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CEO Confidence Index June 2006

Fed’s Fear of Inflation Impacts Perception of Investment Prospects Executives Want Legal & Skilled Immigration, View China & India As Biggest Threats, But Overwhelmingly Favor Free Market Trade PoliciesWatch the June Confidence Index on CNBC’s Morning Call. 

Amid strong words from Federal Reserve Bank Chairman Ben Bernandke regarding the threat of inflation in the coming months, the Chief Executive CEO Confidence pulled back by 7.7 points. The leading economic indicator currently stands at 165.7, according to 299 top executives surveyed. All component indices fell in June as well.

Still, the CEO Confidence Index is just 16.7 points off the high of 182.4 set in January 2006, the highest level of confidence recorded since 2002. It has been falling steadily over the past 6 months to its current level. Said one CEO of the current climate of the economy, “Economy does not seem beset by a surplus of confidence. Seems like everyone is nervously confident with concerns about energy, world affairs, etc.”

The worst performing component index, used to shed light on executive perceptions on more focused areas of the economy, was the Investment Confidence Index. It fell by 12.4 points to 134.3, and it currently is the lowest of all component indices, and is at its lowest level since November 2005.

Investment concerns are driven significantly by the Fed’s watchful eye over inflation, signaling that the end to rate hikes may not be as near as some may have thought. CEOs fear additional rate hikes because it makes borrowing and capital spending larger obstacles to business. “The Fed needs to stop raising rates; they have gotten ahead of themselves. The result, if they continue to raise rates, is going to be the door slamming shut on housing and capital spending,” said David Cox, COO of The Bradbury Co., Inc. As a result, only 41 percent of CEOs surveyed rate investment conditions as currently “good,” compared with 48 percent who felt the same when polled in May.

The Future Confidence also fell strongly this month, by 8.7 points to 139.6. It currently is the second worst-performing component index. Only two-thirds of CEOs expect gradual growth in the economy over the coming quarter, compared to almost three-fourths of CEOs who felt similarly when polled last month. Executive concerns regarding the future span several topics. One CEO summed up his fears as such: ” The War, inflation and lack of confidence in the current Bush Administration makes [the direction of the economy] very difficult to predict.”

Chief Executive Group also polled CEOs about immigration and foreign trade policy, the current hot-button issue in Washington with the midterm elections rapidly approaching. Firstly, CEOs were asked whether a free-trade foreign policy approach is preferable to protectionism. CEOs answered strongly in unison, with 88% of respondents casting their vote in favor of free trade. That support does not come without qualifiers, however. One CEO noted, ” I favor a free market foreign policy provided that we take into account China’s lack of respect for IP [intellectual property rights] and its artificial currency protection.” CEOs were also asked which countries they fear will pose the greatest threat to American jobs and wages over the next three years. They ranked China as the number one threat and India as the number two threat, followed by Mexico as a distant third.

Finally, CEOs were asked what the impact of continued immigration restriction would be with regards to outsourcing. Over 51% of CEOs responding felt continued immigration restriction would accelerate the outsourcing of jobs to other countries. “The immigration debate is a double-edged sword,” said Chairman and CEO of Chief Executive Group, Edward M. Kopko. “On the one hand we hear cries to restrict immigration, but on the other hand we hear cries to stop jobs from going overseas. Limiting the labor force in the U.S. certainly will not help to stop the flow of jobs overseas.”

CEOs also voiced many of their concerns regarding immigration, and offered their thoughts as to how to resolve the issue. CEOs varied on their support of the Presidents proposed solution with of worker permits, but they voiced a few concerns in unison. Many felt the debate has gotten too partisan and exploited for political gain: “It is a policy that needs considerable public policy discussions, rather than a political party-oriented knee jerk reaction,” said Bruce Codding, CEO of Librx. Cesar Martinez, CEO of AccuComp Enterprises commented, “The debate on Immigration Policy is not based on economics. It is a wedge issue used by the opponents of immigration for partisan purposes.”

In addition, CEOs felt that the debate on immigration focuses too heavily on the flow of unskilled labor. One CEO said, “I find it appalling that we are turning away some of the brightest and most educated people in the world.” Another said, “We should welcome every skilled person who wants to stay or come here,” pithily summarizing the threat of job outsourcing if keeping skilled labor in America does not remain a priority.

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, June 2006

Respondents: 299

 

Jun-06

Change from Prev Month

Ceo Index

165.7

(7.7)

Current Confidence Index

204.4

(6.2)

Future Confidence Index

139.6

(8.7)

Business Condition Index

183.8

(6.8)

Invest Confidence Index

134.3

(12.4)

Employment Confidence Index

186.2

(2.7)

 Do you favor a free market for the exchange of goods and labor (free trade) between the United States and other countries?

Yes

 87.5%

No

 12.5%

Which countries over the next 3 years will pose the biggest threat to American jobs and wages?

China 46.6%
India 36.5%
Mexico 8.4%
Malaysia 1.5%
Indonesia 1.4%
Japan 1.4%
South Korea 1.2%
Russia 0.9%
Taiwan 0.7%
Canada 0.3%
Spain 0.2%
Singapore 0.2%
United Kingdom 0.2%
France 0.2%
German 0.2%
Hong Kong 0.2%
Brazil 0.2%


If the US continues to restrict immigration of foreign labor will this accelerate the outsourcing of jobs to other countries?

 

 Yes

 51.5%

 No

 48.5%

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