CEO Confidence Index Falls on Worries over Inflation and Gov’t Debt

After a positive jump in April, Chief Executive’s CEO Confidence Index fell 2.2% in May to 6.09 out of a possible 10. The Index, Chief Executive’s monthly gage of CEOs’ perceptions of overall business conditions, has fallen 5.8 percent from February’s 2011 high of 6.39. Sixty-five percent of CEOs surveyed rate their expectations for business conditions over the next year as at least ‘good,’ a 4% drop from last month.

Despite the dimmer outlook, CEOs’ expectations for revenue levels at their firms have remained relatively unchanged; in both April and May, 74 percent of CEOs expected to see an increase in revenue over the next year. Along with this increase in revenue, 65.5 percent of CEOs expect to see an increase in profits; 34.5% of the CEOs surveyed expect profits to decrease or remain unchanged.

Hiring is also a sticking point for many CEOs. In April, 51 percent of CEOs expected that their workforce would stay the same or be reduced; this number has jumped to 57.7 in May — a 12.7 percent increase. And of the 43.2 percent that do expect to increase their workforce, 78 percent expect to grow by less than 10 percent. So, chances of serious job creation seem slim.

CEOs are concerned about issues such as inflation and government debt. Doug Clark, CEO of AmeriQuest Transportation Services says, “I consider inflation to be the number 1 issue that will derail the current moderate growth we are experiencing.” Another CEO echoed Clark’s sentiments by saying, “Inflation is beginning to impact most companies and individuals.”

Along with inflation, CEOs are worried about U.S. government debt and the declining value of the dollar. Gary Smith, President and CEO of Optimum Performance Technologies LLC, says, “We have seen the collapse of the stock market, the real estate market, the credit markets, and we have also witnessed the decline of discretionary spending over the past few years. Despite Wall Street and the current Washington administration saying that the worst is over, I think that either (a) we are being lied to or (b) both of these groups are in denial. The continued decline of the dollar and the massive increases in government debt do not portend well for the future. I personally believe that, in the next 12-24 months, we will see an economic collapse that will make what we experienced in 2008 and 2009 look like a birthday party.”

Smith’s views seem to confirm what ChiefExecutive.net’s columnist and CEO expert, Ram Charan, had to say about the possibility of future inflation in his article Inflation Watch: Are You Prepared? Richard Pollina’s ChiefExecutive.net article, A National Addiction to Deficit Spending, also spotlights the troubles of government debt.

While CEOs seem less than optimistic about the future, their outlook on current business conditions continues to rise. Current CEO confidence levels are up 1.5 percent from April to 5.38.

CEO Confidence Index — May 2011

Respondents: 198

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?