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CEOs Concerned With Energy

ALTHOUGH THEY SEEMED TO shrug off Hurricane Katrina at first, corporate leaders now appear to believe the disaster revealed problems …

ALTHOUGH THEY SEEMED TO shrug off Hurricane Katrina at first, corporate leaders now appear to believe the disaster revealed problems in the economy, particularly its energy sector. Although still at relatively high levels historically, CEO confidence plunged in October by 13.7 points, the second-largest fall since we began this email polling in October 2002. The drop took the benchmark CEO Confidence Index from 164.6 the previous month to 150.9 in October (see chart, bottom left.) In particular, CEO attitudes toward hiring darkened considerably. The CEO Employment Confidence, which is a component of overall confidence, plunged 20.8 points, from 182.5 to 161.7, the largest ever decline.

 

Energy seems to be uppermost on CEOs’ minds. When asked to rank the events or trends that have had the most damaging impact on the U.S. economy over the past six years, our 472 respondents put energy costs at No. 1, followed by the September 11 terrorist attacks, and then the dot-com bust (see chart). “The rising cost of energy is central to the success or failure of our economy,” said Andrew Hayman, CEO of CoAMS Holdings, a marketing firm in Chicago. “Obviously, higher fuel costs negatively affect everything from transportation to manufacturing, but there is a positive aspect as well. At some point, [they] will compel consumers to change their behavior, and manufacturers, energy companies and government to begin in earnest to provide viable alternatives.”

 

The ease with which Katrina knocked out energy infrastructure made an impression. “Katrina proved the U.S. economy is helpless as a baby without fossil fuel,” said Don Louis, CEO of CoLinx, a provider of e-commerce and logistics services in Greenville, S.C. “The U.S. needs to develop alternative fuel more urgently than we need to secure Iraq.”  

 

When combined with other problems, the challenge is compounded. “We are experiencing the €˜perfect storm': overspending overseas (the war), domestically (Katrina) and high energy prices,” said Blythe McGarvie, Virginiabased author and president of the Leadership for International Finance Group, a consultancy. “We need fiscal discipline and a true plan to keep government spending under control.”

 

 

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