CEOs Gain Some Confidence in Economy, but Remain Wary
More CEOs and business owners are expressing confidence in U.S. economic growth these days, including decisions to boost capital spending and to lay out more cash to back up their new attitude. But their tea leaves remain muddied because of regular reminders that the American economy is still a long way from the robustness it enjoyed prior to the financial crash of 2008 and its subsequent Great Recession.
May 1 2014 by Dale Buss
Most telling, more companies say they are ready to plow money back into their businesses, “inspired largely by the strengthening U.S. economy, as well as pressure from long-term investors,” The Wall Street Journal reported.
CEOs and business owners will have to decide over the next three to six months whether they believe the business cycle finally has reached a tipping point that will justify more liberal company outlays. Though the U.S. economy formally has been growing for five years now, many have kept their purse strings clutched because the magnitude of growth has been anemic so far.
More growth sprouts are indeed cropping up every day now. For example, a new survey shows 61 percent of corporate economists say their firms will likely increase capital spending in the next year. That’s up from an average 52 percent in the past four quarterly surveys by the National Association of Business Economics.
And stock analysts expect capital spending to climb 6 percent this year, according to market-data provider FactSet, after rising only about 1 percent last year and potentially ending a several-year slump as chiefs kept their powder dry waiting for economic improvement.
Meanwhile, banks are boosting their lending to businesses, providing fuel for companies to increase spending on workers and equipment, the WSJ observed.
Sales at chain restaurants are also rebounding. They long have been a reliable reflection of the overall financial mood and spending patterns of American consumers. Same-store sales as recorded by Black Box Intelligence rose by 0.7 percent in March after year-on-year declines from November 2013 through February 2014.
“There was significant pent-up demand in consumers for incremental spending in restaurants, but that demand continued to be restricted by the weather” through the harsh winter in most of the United States, a Black Box analyst said.
All these factors have directly lead to an increase in CEOs’ confidence. Chief Executive magazine’s CEO Confidence Index jumped 5.4% in May—the highest in three years. Meanwhile, Duke University/CFO magazine’s snapshot of CFO confidence also showed an uptick, with the magazine’s index of expectations rising three points higher than at 2013 year-end, to 60 out of 100.
Business leaders are not jumping in with both feet, however. There is a continued hesitance of about the future of the economy and they are taking a wait-and-see attitude regarding spending. “Until I see data that my business is going to improve, I’m not going to believe what I read in the papers and go to the bank with it,” Darin Holderness, corporate controller at $500-million woodmaker Woodgrain Millwork, told CFO.
While cautious optimism is in season, these numbers show a more attractive picture than in recent years.