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CEOs Cautiously Optimistic of an Economic Turnaround

While CEOs at bigger corporations intend to increase corporate payrolls, their counterparts at smaller organizations believe in the contrary

If some of the recent CEO surveys are to be believed, the U.S. economy is spearheading fast for its early economic revival. Alongside the increase in CEO confidence at some of the largest American corporations, the companies are also planning to add staff rather than cut jobs for the first time since the first quarter of 2008.

On the contrary, CEO sentiment at most small U.S. businesses is wary, with the majority of owners foreseeing no prospects in the near future. At least two recent small business surveys have hinted of the negative mood and the desire to reduce workforce.

Meantime, three CEO surveys – Business Roundtable Survey, Chief Executive magazine’s monthly CEO Confidence Index and the Conference Board CEO survey – reveal CEOs expect to increase corporate payrolls and step up sales over the next six months.

Business Roundtable’s first quarter CEO Economic Outlook survey said 29 percent of chief executives expect to increase corporate payrolls over the next six months and 21 percent predict their work forces will decrease. As a matter of comparison, just 19 percent in the fourth quarter of 2009 expected their payrolls to increase, while 31 percent said payrolls will decrease.

The Business Roundtable’s Economic Outlook Index expanded to 88.9 in the first quarter of 2010, up from 71.5 in the fourth quarter of 2009, and 44.9 in the third quarter.

“As the economy recovers and demand returns, we are seeing across-the-board increases in sales, resulting in increased capital expenditures, less job reduction and some employment stabilization,” said Ivan G. Seidenberg, chairman of the group and CEO of Verizon Communications, in a media release.

The survey also showed 73 percent of CEOs expect sales to grow over the next six months and just 5 percent expect sales to decrease. In the fourth quarter of ’09, 68 percent expected sales growth, 17 percent expected declining sales and 15 percent predicted no change. In terms of the overall U.S. economy, member CEOs estimate real GDP will grow by 2.3 percent in 2010.

Echoing similar sentiment, Chief Executive magazine’s CEO Confidence Index for March saw sharp rise in the index by a healthy 16 percent rising to 102.5. The CEO Confidence Index has reached its highest level since September 2008 – what most consider the beginning of the economic collapse.

Its Employment Confidence Index increased 17.1 percent, rising to 83.5. CEOs appreciate the importance of jobs to full recovery. One CEO commented, “Consumers are going to have to feel more secure in their jobs before they start spending, which will in turn jump start the economy.”

Additionally, a recent Conference Board CEO survey also indicated CEOs were increasingly desirous to step up payrolls by hiring more employees. More than 30 percent of Conference Board member CEOs anticipate an increase in employment levels in their industry, up significantly from less than 3 percent a year ago. The proportion of CEOs who anticipate a decrease in hiring plummeted to 22 percent from 86 percent a year ago.

However, contrary to the mood at bigger corporations, small business owners are less optimistic about an early economic revival and intend to cut jobs rather than hire. According to NFIB (National Federation of Independent Businesses), a Nashville-based association of small businesses, a majority of small businesses are looking to trim their workforce in the next few months.

Discussing the latest NFIB survey, Bill Dunkelberg, its Chief Economist, in a media release said over the next three months 7 percent plan to reduce employment (down one point), and 15 percent plan to create new jobs (up two points), yielding a seasonally adjusted net negative 2 percent of owners planning to create new jobs, weaker than February, and still more firms plan to cut jobs than plan to add.

“The March reading is very low and headed in the wrong direction,” said Dunkelberg. “Something isn’t sitting well with small business owners. Poor sales and uncertainty continue to overwhelm any other good news about the economy.”

Another survey by Discover Small Business Watch, a subsidiary of Riverwoods, Illinois-based Discover Financial Services, revealed similar small business sentiment with more than half of America’s small business owners seeing conditions for their businesses getting worse in the next six months. After some upward trends for most of last summer and into the fall, Discover’s monthly check on the pulse of small business owners measured 75.7 in March, down 9.2 points from February and back to the levels of a year ago.

“We’ve seen bigger month-to-month drops, but there is clearly a pattern here: Small business owners don’t like what they’re seeing – both at home and in the larger economy – and they’re responding by pulling back, rather than just holding the line,” said Ryan Scully, director of Discover’s business credit card, who commissions the monthly survey. “Tax season could be having an effect on the overall mood, especially because they’re still not seeing any relief from the government.”

About fayazuddin a. shirazi