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CEO Confidence Index October 2006

CEOs Optimistic On Future Business Prospects, Plan to Spend and Hire More

 Click the image to see Ed Kopko on CNBC

Putting an end to a 4 month tumble dating back to June, the Chief Executive Magazine CEO Confidence Index rose in October according to 233 top executives surveyed. The leading economic indicator sits at 156.8, up 7.9 points from last month. The Index is still off 25.6 points, however, from its high set back in January of 2006.

All five component indices, metrics specific to certain areas of the economy, also rose this month in a range from 5.5 to 9.0 points. The Investment Confidence Index, normally the least volatile of all, led the gains this month, gaining 9.0 points to 135.8. According to the respondents, 42.1% of CEOs rate current investment opportunities as “good,” while only 12.0% rate them as “bad.” Moreover, 47.8% of respondents expect capital spending to increase in the coming quarter at their company, while only 15.5% expect capital expenditures to decrease. Said Carlton Turner, CEO of Carrington Labs, “The American economy, from our position, is sound and will grow slightly better in 07 than 06. Our people, domestic and international, are optimistic. We expect to have organic growth and a possible acquisition.”

The Business Conditions Index, which measures CEOs perceptions of the current and near-future business climate, also rose strongly. It gained 8.6 points to 174.4. 46.4% of CEOs rated current business conditions as “good,” and a mere 6.4% rated them as “bad.” Furthermore, almost 2/3 of CEOs (64.5%) expected the economy to experience gradual or rapid growth for the next 3 months. CEO Jerry R. Mitchell explained the reasoning behind his bullishness, citing the recent drop in oil prices: “With energy costs decreasing, our company is looking forward to moving forward with our expansion plans.” CEOs also mentioned the recent lack of interest rate hikes and the fact that more hikes are not too likely in the near future as other reasons for optimism.

Chief Executive also investigated CEO sentiment over longer-term prospects with a special additional poll this month. They found that CEOs were by and large optimistic regarding the prospects for their companies over the next year. 43.5% of those polled expect to increase hiring at their company next year, while only 10.9% expect to decrease hiring. Additionally 46.1% expect to increase capital spending next year, while only 19.6% expect a decrease. Finally, when asked whether their company will grow, decline, or stay the same, only 8.3% indicated some sort of expected decline, while 58.7% expected growth in some form (for full results, see tables below). “When interest rates and energy costs were rising earlier in the year, CEOs were justifiably cautious,” said Edward M. Kopko, President and CEO of Chief Executive Group. “With a reversal of these trends, their confidence has started to rebuild.”

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, visit our full report at http://www.chiefexecutive.net/ceoindex.

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.  A. G. Lafley, George David, Fred Smith, 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.  Visit www.chiefexecutive.net for more information.

CEO Index, October 2006

Respondents: 233

  Oct-06 Change from Prev Month
 CEO Index  156.8 7.9
 Current Confidence Index 195.0 8.2
 Future Confidence Index 131.0 7.7
 Business Condition Index 174.4 8.6
 Invest Confidence Index 135.8 9.0
 Employment Confidence Index 164.3 5.5

 Based on your outlook for the economy, how will your company grow next year as compared to this year?

 High growth 13.0%
 Growth 45.7%
 About the same 33.0%
 Decline  7.4%
 High Decline 0.9%

 Based on your outlook for the economy, how will your hiring change next year as compared to this year?

 Increase 43.5%
 Stay the same 45.7%
 Decrease 10.9%

 Based on your outlook for the economy how will your capital spending change next year as compared to this year?

Increase 46.1%
Stay the same 34.3%
Decrease 19.6%

 

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