The CEO Confidence Index, Chief Executive‘s monthly gauge of CEOs’ expectations for business conditions over the next 12 months, stayed relatively flat in August, falling just 0.4% from July to 5.82 out of a possible 10. The Index has fallen more than 4% since June when it reached a 2-year high of 6.09, a number that had not been seen since May 2011.
The Current Confidence Index, which provides a snapshot of CEOs’ perceptions of current conditions, rose 1.3% from the previous month to 5.58. This marks the 46th consecutive month (since November 2009) that CEOs’ ratings of future conditions is greater than their rating of current conditions, indicating an optimism that the economy and business conditions will continue to improve.
The rating of current conditions are better than CEOs had predicted a year ago. When polled in August of 2012, CEOs’ expectations for business conditions in August 2013 was for a rating of 5.34. Current conditions in August 2013 were actually rated 4.5% higher than CEOs had expected. This is the third consecutive month where the current conditions rating beat the expectations from a year earlier.
Despite beating expectations, the Confidence Index did fall this month, and comments from CEOs indicate that the optimism is cautious if not tenuous. The CEO of a middle-market consumer goods manufacturing company provided perspective on current conditions and how it is affecting her business: “Doing business in this economic environment is like running through ankle deep mud. We are getting stronger doing it but progress is very slow.”
Concern regarding the implementation of the new health care law, the Fed’s quantitative easing program, gridlock in Congress, and a general mistrust of the current administration’s aptitude in helping spur the economy are all weighing on our respondents’ level of confidence, according to the survey comments we received.
The CEO of a multi-billion dollar industrial manufacturing company provided his purview on current conditions and the mitigating factors affecting his optimism: “The U.S. market is a better performer among weak markets globally. We would have a strong recovery if policy makers would [get] out of the way. The U.S. will be burdened with uncertainty around the ACA, tax policy, spending proclivity, and monetary policy (which cannot overcome delinquent public policy). This all is compounded by a malaise in Europe and a modest Asian retrenchment after some superb growth. Where is the leadership? But as business people we must find a way to perform in this reality.”
There is great disparity in the level of confidence from CEOs among companies of different sizes. The smaller the company, the less confident they are both in current and future business conditions. For the smallest companies in our survey (with revenues less than $10 million), current conditions were rated at 5.40 and future conditions were rated at 5.63, which are both more than 3% lower than the overall ratings.
The largest companies in our survey (greater than $100 million in revenue) are by far the most confident cohort. CEOs of these companies gave current conditions a rating of 5.81 and future conditions a rating of 6.07. These are each more than 4% higher than the overall ratings.
Based on anecdotal evidence from the comments we received, it appears the largest companies in our survey have been able to become more efficient and streamlined during the economic downturn, with many achieving growth in revenue and profits recently. Smaller companies seem less capable of cutting costs and increasing efficiency than their larger counterparts, which could be a contributing factor for the divergence in confidence levels.
CEO Confidence Index — August 2013
Respondents: 152
July 2013 | August 2013 | Monthly Change | |
CEO Confidence Index | 5.84 | 5.82 | -0.4% |