Are these the best of times or the worst of times? CEOs seem to be signaling that they are optimistic about today, but skeptical about tomorrow.
The overall CEO Confidence Index in August rose to 171.1, up from 163.1 in July. But that was largely driven by one of its key components, Current Confidence, which jumped to 204.6, up from 195.2 in the previous reporting period. Another component, Future Confidence, increased by a much smaller margin, from 145.3 to 148.4. The more than 55-point gap between corporate leaders’ views of today’s conditions versus conditions one-quarter into the future is the widest since we began email surveys of readers in October 2002. (Results this month may have been affected by a smaller number of respondents, 367, partly due to summer schedules.)
There’s no question that companies in energy and housing-related sectors are booming. “When you add 2 million net new jobs in the prior 12 months; 10-year rates are in the low 4 percent range; incomes have risen more than 4 percent on average; housing sales have set all-time records; and home ownership is the best in history-that’s a stellar economy!” enthused Stewart Morris Jr., president and co-chief executive officer of Houston-based Stewart Information Services, a provider of real estate services.
“Business is very good right now,” wrote another respondent who declined to be identified. “The problem is that prices for land and buildings are very high and probably unsustainable. So much of the economy depends on the housing market that these high prices will cause a problem down the road.”
Oil prices are clearly of concern to many. “The gross domestic product as presented by leading economists, government officials and the Federal Reserve is overstated by the dollar amount of the oil price increase,” a reader argued. “The $185 billion spent for the same amount of oil has added zero to the economy. Subtracting this from the GDP results in an adjusted real growth rate of 1.2 percent.”
A long-awaited surge in business spending on information technology also hasn’t materialized. “From our viewpoint, the economy is stagnant,” said one executive. “We provide automation to businesses and their spending levels have dropped like a rock in the past year. We anticipated an increase in the first and second quarter of this year and we were wrong.”
So the message from CEOs is that some sectors of the economy are doing well and overall there is strength at the moment. But few seem convinced that the good times can roll on indefinitely. The fact that Future Confidence is lagging so far behind Current Confidence may represent a taste of things to come.