CEO Confidence Index October 2004

Bright Outlook on Tech Investment Improves Prospects of Growth

October 19 2004 by Chief Executive


Although CEO Confidence dropped for the third month in a row, it fell less than one- half of a point, from 159.7 to 159.4. All other main indices in the CEO Confidence Index showed the same trend, although the Business Condition Index dropped a little more than normal and the Investment Index increased.

Despite uncertainty about the presidential election, there are signs of hopeful news on the horizon. Not only did CEOs’ investment confidence rise, the results were stronger among big companies: a 7.6-point difference between investment and business condition confidence (with investment being more positive) compared with an 8.8-point difference between investment and overall confidence (in the same direction). There was no noticeable change in the same categories among small companies. 

CEOs are showing a serious interest in increasing tech spending in the near future, as an additional poll conducted by Chief Executive group shows over 70% CEOs are intending to increase tech spending in the next year, while 25% expect to increase spending by over 10% of their current budget and 26% expect to increase spending by 5 to 9%. Conversely, only about 8% of executives surveyed expected to decrease spending over the next year. The top three areas for CEOs to add additional resources are hardware (17.45%), security (15.88%), and software integration (15.76%).

All this spells good news for not just the tech sector, as statistical analysis shows that job growth is linked to corporate investment, accounting for 35% more of the change in job growth than changes in profits do. As a result, the desire of CEO’s to increase investment in technology spells good news for an economic climate conducive to job growth and stock market gains.

“Recent strong showings in the investment portion of the CEO Index are giving some serious indications that other things besides corporate profits and legislation affect job growth,” says Edward M. Kopko, chairman and CEO of the Chief Executive Group. “Our research shows tracking corporate investment is twice as helpful in predicting job growth than tracking corporate profits proves to be. As a result, we believe that there is serious evidence to suggest employment will increase in the near future.”

In addition, the shrinking gap between current and future confidence suggests momentum is building for the future. Since January, 2004, the Future Confidence Index has stayed below the Current Confidence Index, indicating CEOs are less optimistic about the future climate than the current one. This difference was greatest in June, 2004, when future confidence was a full 30 points below current confidence. Since that month, the gap has been shrinking (to 23.3 points this month), implying that executives are getting more optimistic about the future.

“It is clear that our economic engine has been slowed the past few months from its previous robust growth, but we see good news to come,” says William J. Holstein, editor-in-chief of Chief Executive magazine. “With the election coming to an end and signals pointing to an optimistic future, we might be able to assume some of the fog has cleared.”

The CEO Confidence Index 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 reaches 42,000 chief executive officers and their peers.  It is published 10 times a year and 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.  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 17-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. 

In comparison to your technology spending in 2004, will your spending in 2005:

Increase by more than 10% 93 25.6%
Increase by 5-9% 95 26.2%
Increase by 1-4%  71 19.6%
Stay the same  74 20.4%
Decrease by 1-4% 16 4.4%
Decrease by 5-10%  14 3.9%

Please check the areas where additional resources will be allocated in 2005.

 Enterprise software

 117

 14.18%

 Network development 119 14.42%
 Hardware 144 17.45%
 Manufacturing Automation 56 6.79%
 E-commerce 104 12.61%
 Security (technology protection) 131 15.88%
 Software Integration 130 15.76%
 Other 24 2.91%