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Crash in CEO Confidence; Revenue and Profit Estimates Plummet

The CEO Confidence Index plunged 12.2 percent in June to 5.36 out of a possible 10. This is more than one full point lower than 2011’s high of 6.39 in February. CEOs’ expectations were far lower on everything from revenue and profit to employment and capital expenditures.

CEO confidence plummeted 12.2 percent in June to 5.36 out of a possible 10. The Index, Chief Executive’s monthly gauge of CEOs’ perceptions of overall business conditions for the next 12 months has seen a 16 percent drop from February’s 2011 high of 6.39. Only 47 percent of CEOs surveyed rate their expectations for business conditions over the next year as at least ‘good,’ an 18 percent drop from last month.

Though CEO pessimism about the future is clear, their view of the present is even worse. CEOs rank current business conditions a dismal 4.81 out of 10; this is a 10.6 percent drop from last month’s 5.38.

According to one CEO, “[I have] no confidence in the overall economy.”

In keeping with this dim outlook, CEOs’ expectations for revenue levels at their firms have also significantly dropped: only 63.7 percent of CEOs expect to see an increase in revenue as compared to April and May’s 74 percent. In addition, 50 percent of CEOs who expect to see an increase in revenue expect that increase to be by less than 10 percent.

Profit expectations have also taken a huge hit as only 54.9 percent of CEOs expect to see an increase in profits compared to May’s 65.5 percent. And again, of those who do expect to see an increase in profits, roughly half (48.9 percent) expect that increase to be by less than 10 percent.

Without optimistic expectations for revenue and profit growth, we can expect continued stagnant employment numbers. Forty-four percent of CEOs expect to see no change in the size of their workforce. A small 34.8 percent expect to see an increase in employees; however, almost three quarters of these CEOs (73 percent) expect to increase their number of employees by less than 10 percent.

Most chief executives continue to think that the US government is not helping a recovery, but rather hurting it. CEOs point to government debt and attempts to spend our way out of the recession. The CEO of a business with annual revenue of more the $1 billion says, “I continue to have concerns relative to the reluctance of the banks to lend to credit worthy businesses. Also, all politicians continue to believe that the answers to economic problems must be political in nature rather than economic. It’s as if those in government have effectively repealed the laws of economics. The government is not the answer, the operation of the free market is.”

In a similar comment, another CEO whose annual revenues are between $100 million and $1 billion says, “The Federal government under this administration is in gridlock due to funding delays and a mass exodus of the seasoned professionals who are being replaced with political appointees twenty years younger and two levels deeper than prior administrations. The net result is delay and uncertainty as priorities shift in response to politically disjointed solutions. This leaves us with a narrow set of options for increasing shareholder equity. Since we can’t grow it, we have to ‘mine it’ by enhancing the bottom line. That means cutting cost, and the biggest component of cost is indirect labor…high end jobs.”

CEO Confidence Index — June 2011

Respondents: 257

May 2011 June 2011 Monthly Change
CEO Confidence Index 6.09 5.36 - 12.2%

 

What do 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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