CEOs Less Skeptical About Economic Revival
June 25 2009 by Fayazuddin A. Shirazi
CEOs of leading American companies continue to be wary of the economic turnaround, but they are not as suspicious as they were three months ago. According to the Business Roundtable CEO Economic Outlook survey released recently, CEOs hold a less grim view of economy now, albeit, they still will be cutting on jobs and capital spending, the survey found.
The quarterly CEO Economic Index, which measures member CEO sentiments for sales, capital spending and employment, expanded to 18.5 in the second quarter, up from a negative of five in the first quarter. The index ranges from negative 50 to 100, with any reading below 50 is consistent with overall economic contraction and a reading of 50 or higher is consistent with expansion.
“This quarter’s results reflect a continuing weak set of economic conditions,” said Ivan G. Seidenberg, Chairman of Business Roundtable and Chairman and CEO of Verizon Communications in a media statement. “Conditions – while still negative – appear to have begun to stabilize.”
In terms of overall U.S. economy, CEOs expected that real GDP will decline by 2.1 percent in 2009, down from an earlier estimate of 1.9 percent decline in the first quarter of 2009.
However, they were a little more optimistic about the company sales, with 34 percent of the CEOs expecting sales to increase in the next six months, a modest increase of 10 percent in comparison to the first quarter estimates.
The crucial question confronting senior executives and investors is when the U.S. economy will see a rebound from the recession which it entered in December 2007. Recently released data on the U.S. home resales for May also depicted a grim picture with sales nationwide falling 3.6 percent from a year earlier despite low prices and tax incentives.
A report from the National Association of Realtors said that total number of homes sold in May was 451,000, or 6.6 percent below the year-earlier number. Even the new home sales also recorded a mild plunge of 0.6 percent in comparison to the April 2009 figures, underscoring that conditions in the hard-hit housing market still remain fragile. Additionally, industry pundits believe falling prices of the U.S homes could yet delay a housing recovery critical to the health of the wider economy.
Although the worst of the job cuts could be over – with 45 percent of the CEOs preferring to make no change in their company’s employment structure – CEOs still are planning to cut costs in the next six months with 49 percent keen on cutting jobs and 51 percent of them intending to decrease capital spending. However, in comparison to the first quarter survey results, less number of corporate chiefs are actually desirous of cutting on capital spending. Last quarter survey results indicated 67 percent of CEOs were contemplating to slash capital spending, as against a figure of 51 percent now.
Business Roundtable an association of CEOs of leading corporations represents a combined workforce of nearly 10 million employees and more than $5 trillion in total revenues.