CEOs’ Expectations Hit Highest Level Since May 2011
May 14 2013 by ChiefExecutive.net
The CEO Confidence Index, Chief Executive’s monthly gauge of CEOs’ expectations for business conditions for the next 12 months, saw its highest month-over-month gain in the past two years, rising 9.5 percent to 6.07 out of a possible 10. The rating of current conditions also saw an uncommonly high monthly gain, rising 8 percent to 5.70 out of 10.
How confident CEOs are in overall business conditions varies greatly by company size. For companies with greater than $100 million in revenue, confidence was rated at 6.66 out of 10. That number is substantially higher than the 5.95 rating for companies with between $10 and $99.9 million in revenue and a staggering 18.3 percent greater than the 5.44 rating given by CEOs of companies with less than $10 million in revenue.
Interestingly, most of the comments received from the CEOs of these smallest companies cited the federal government as the reason for their pessimism. “Until the Federal government gets its proverbial act together (e.g., reduce spending, pay down debt, reform the incredibly complex tax code, etc.), I expect the recovery, such as it is, to remain sluggish,” said the CEO of a small media company.
The lack of appreciation for the federal government’s decision-making and its dysfunction was not limited to CEOs of these small companies. The CEO of a middle-market manufacturing company reported he is “really surprised that the economy and our business levels are stronger than budgeted expectations. We want it to stay that way.”
While the majority of comments received from CEOs indicated skepticism of business conditions, ratings for business conditions and expectations for individual businesses are improving. Nearly 73 percent of CEOs surveyed expect their revenues to increase over the next year, and almost two-thirds expect increased profits.
Some of the respondents were quick to note that their businesses may be exceptions in the current environment. “Because the housing market is recovering despite a weak overall economy, our business is recovering nicely,” reported the CEO of a building-products distribution company.
While confidence is on the rise overall, many CEOs remain concerned about current economic conditions. “There’s still too much uncertainty,” noted one CEO. “Bad competitors have been weeded out. Everyone else is protecting profits [with the philosophy of] live to play a better day.”
Many of the less optimistic CEOs surveyed cite the toll that implementing healthcare reform will take on the economy as a primary concern. “Obamacare costs and overhead burden—both known and unknown—are holding back investment in our products by our customers,” reported one business leader.
“Tax increases, regulations and Obamacare will continue to be headwinds offset somewhat by the halo effect of the Fed’s artificially inflating equity and housing prices and depressing interest rates,” predicted another CEO. “Unfortunately, the Fed will have to ratchet down in the next 12-18 months and we will be left with only the headwinds. Obamacare, especially, will be a major economic drag, as uninformed people begin to realize what the true cost and complexity will mean to them. We already know that our employees will pay at least 6 percent more in premiums starting October 2013 in addition to actuarial increases that are also expected to skyrocket from the mandates.”
Some see this situation as indicative of a disturbing political trend that may only intensify. “Ramifications of Obamacare costs, regulations and global economic conditions create uncertainty in [markets] and costs,” noted one CEO. “Now, additional concern [is] that the liberal tendencies of government will continue in the next administration, which is strongly expected to be [led by] Hillary Clinton.”