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CEOs Remain Cautious Ahead of Presidential Election, Confidence Index Stays Flat in August

The CEO Confidence Index fell just 0.3% in August to 5.34 out of a possible 10 from July’s 5.36. The Index is now down 11.4% from its 2012 high of 6.03 in February. CEOs of small businesses have even less confidence than their bigger business counterparts.

The CEO Confidence Index, Chief Executive’s monthly gauge of CEOs’ expectations for overall business conditions over the next twelve months, fell just 0.3% in August to 5.34 out of a possible 10 from July’s 5.36. The Index is now down 11.4% from its 2012 high of 6.03 in February.

The Current Confidence Index also stayed relatively flat since July, falling 0.9% to 4.78 out of 10. This is the third consecutive month Current Confidence was below 5, which makes it 11 out of the last 15 months that CEOs’ current confidence in overall business conditions has been below this threshold.

A rating of 6 corresponds to “good” in our survey, and current business conditions have been rated as less than “good” every month beginning October 2008 – 47 consecutive months. In May 2010, the Current Confidence Index was 5.81 – the closest it has been to “good” since September 2008.

There is a large deviation in confidence between small and large companies. CEOs of companies with over $100 million in annual revenue rate their expectations for business conditions at 5.61 out of 10 – 5.1% higher than the overall Index number. Similarly, CEOs of these larger companies rate their current confidence 3.3% higher than the overall number at 4.94 out of 10.

CEOs of smaller businesses report far less confidence in their expectations for business conditions than their larger company counterparts. For CEOs of companies with less than $5 million in annual revenue, their confidence level is rated at 5.07 out of 10, 5.1% lower than the overall number and 9.6% lower than the rating given by CEOs of companies with over $100 million in revenue.

“Our small management team is extremely worried about Obama’s policies. We are a sub-chapter S corporation and the looming 2013 tax increases, the health care cost uncertainty and the overall ‘anti-business’ attitude is hitting us hard. I don’t think the U.S. voters understand just how fragile the small business motivation is as we look to the near future. We honestly can’t plan with a federal government timeline that is consistently seeking 12-month temporary solutions. We have 3 to 5 year investment projections,” said a CEO of a $5 million manufacturing company.

Uncertainty has been the major stifling factor to small businesses, according to our CEO Confidence Index respondents. The majority of comments we have received recently have stated the same thing time and time again: a change in the White House will increase optimism, but another four years of an Obama administration is a scary prospect for businesses.

Interestingly, the only specific policy concern as conveyed by our respondents is in regard to the Affordable Care Act and its cost implications. In general, the lack of clarity around tax policies and the perceived anti-business sentiment of the current administration are what are responsible for the pessimistic outlook.

As for our CEO respondents’ specific expectations for changes in their own companies over the next 12 months, only 33.6% expect to increase their number of employees and 21.1% expect to decrease their workforce. This is despite the fact 56.7% anticipate an increase in profit and 62.4% expect revenue growth. Similarly to the employment outlook, only 38.5% of CEOs plan to increase capital expenditures over the next year. Seemingly, most CEOs are successfully leading their companies to revenue and profitability growth despite their inability to confidently invest in their businesses due to so much uncertainty.

Selected Comments from CEO Survey Repsondents

“In spite of the left or right bias of most media, we see a tentative but modestly strong business environment. Our biggest obstacle in the US is political devisiveness, which is preventing expedient policy and decision making and creating an uncertain investment climate. Our political leaders and their partisan backers are failing us right now.”

“The biggest challenge to US economy is the current fiscal and tax policy. If this is not addressed I think the US economy could grow even with the situation in Europe.”

“The business climate has declined since the end of the first quarter. Unfortunately it reminds me of how we felt in the third quarter of 2008 and that quite frankly scares me.”

“Have little to no faith in current administration. Client/customer decision processes have gotten slower. Little focus on innovation or progression. Many just trying to manage regulatory environments.”

“If Obama is reelected I believe many small businesses like ourselves will be severely challenged just to stay in business much less the number of people we will have to layoff to try and stay in business.”

“The economic climate is still too unstable. Also, it is interdependent on interrelated variables such as job growth, ability to borrow, housing, retail, manufacturing, foreign competition, offshoring and government intervention.”

“The uncertainty of the US political situation and global market is causing everyone to assume a ‘bunker’ mentality. If Obama wins, we will head into a severe recession… The US is in a very bad situation in our state and throughout the entire US. Ugly and scary!”

“Our economy is now in a ‘needs based’ rather than a ‘want based’ cycle. Consumers ‘need’ to buy food, put gas in their vehicles to get to work, and keep a roof over their heads. They may ‘want’ but not ‘need’ to replace a couch, buy a fashionable new blouse, or upgrade perfectly serviceable technology. Downward price pressures and macro-economic trends mitigate against a dramatic economic recovery in the near term.”

“Federal and state regulations are strangling our business such as the SAFE Act on mortgage lending and a state law postponing foreclosing on severely past due property loans… enough of this consumer protection and bullying by the federal and state government!”

“I believe business could be better in the next twelve months depending on whom is elected to office and whether congress will begin fulfilling their obligations instead of lining their pockets. Both are significant gambles and if we just have more of the same the revenues, profits etc. will be dramatically worse.”

“The U.S. elections are critical to the future business climate. With an Obama win, things will continue to languish in the small business arena. With Romney, there will be more of a recovery, though still modest. Unless there is a fundamental change in the Congress, we will not see fast growth in the foreseeable future.”

“If Obama gets re-elected I see no improvement in the economy. If Romney gets elected, I foresee some noteworthy improvement, but not as much as it could be since the Obama administration had dug us such a big hole with $5 trillion additional debt in his past 3 years of incompetence.”

“On my prediction for business over the next year depends on who wins the election. If Obama wins, I expect it to get worse. If Romney wins I think it will start to improve but do not expect big change first year.”

“Uncertainty, that’s the problem. We need to understand the rules before stepping out aggressively.”

“Much depends on getting Obama out of office, so that some confidence in industrial projects can develop. Obama is destroying the American free enterprise system.”

“There is no confidence in this Administration or Congress to get us on the right track and they keep getting in the middle and causing problems.”

“The potential for economic improvement next year is based upon the following premise: Mitt Romney becomes President and conservative Republicans gain a majority in the Senate while holding the House of Representatives. If Barack Obama is re-elected, due to his policies, the outlook darkens. It is no accident that most economic and job growth is taking place in states with a Republican governor and legislature. Constitutionally limited government must be restored with tax, regulatory, energy and trade policies that support American production.”

“In spite of the left or right bias of most media, we see a tentative but modestly strong business environment. Our biggest obstacle in the US is political divisiveness, which is preventing expedient policy and decision making and creating an uncertain investment climate. Our political leaders and their partisan backers are failing us right now.”

CEO Confidence Index — August 2012

Respondents: 299

July 2012 August 2012 Monthly Change
CEO Confidence Index 5.36 5.34 -0.3%

 

What do you expect overall business conditions to be like one year from now on a 1 -10 scale? (10 = Excellent)

What is your assessment of current overall business conditions on a 1-10 scale? (10 = Excellent)

Over the next 12 months, what changes do you forecast for your firm compared to the past 12 months?

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