CEO Confidence Index Tumbles in Wake of Japan Crisis and Mid-East Turmoil

Chief Executive‘s CEO Confidence Index, the nation’s leading gauge of CEOs’ outlook on business conditions, tumbled to 6.02 out of a possible 10 in March. This is a 5.8% drop from the previous month, setting a new low for 2011. Though the Index is still higher than at any point from 2008 through 2010, this most recent dip shows the fragility of the ongoing economic recovery.

Recent international events have had a substantial impact both on how CEOs view the current business climate and on their optimism over the coming year. Of the CEOs surveyed, 66% rate their expectations for overall business conditions as ‘good’ or better, down from 70% a month earlier. Respondents rated current overall business conditions at 5.14, down 7.2% from February.

Uncertainty was apparently the driving factor for the decrease in optimism for business conditions. The Japanese earthquake and its radioactive aftermath, in combination with political unrest in the Middle East, have caused many CEOs to be apprehensive.

“We are very concerned about the ‘invisible’ tax increase we are expecting as a result of increasing oil prices,” said one CEO. “In my opinion, this will be the catalyst that sets off an inflationary spiral, while depressing revenues. The recent political events in the Middle East, combined with the tragedy in Japan, will only exacerbate this situation.”

“With all the global problems, (wars, Libya, etc.) and now the disaster in Japan, this could really slow things down and put us in danger of a relapse,” commented another CEO.

Nearly 73% of CEOs expect revenues to increase over the next year, with 41% expecting profit growth. Indicating the lagging effect of employment numbers to catch up to financial success, almost 60% of CEOs expect their number of employees to remain unchanged or decrease over the coming year.

Despite much focus abroad, domestic issues have very much influenced the Index as well. A recurring theme in the comments received from CEOs is doubt about the Obama administration’s ability to fully pull the US out of the recessionary environment. Many CEOs assert that the government has only worsened the economic climate.

As one CEO puts it, “Nobody in Washington will deal with the tough fiscal decisions that must be made.” Two other CEOs go as far as to call the Obama administration ‘a disaster’ and ‘toxic.’ Though they do not offer suggestions to the administration, these CEOs have made it clear that they hope the 2012 elections will usher in an administration with policies that will help businesses to grow, instead of stifling them with prohibitive regulations and costs.

CEO Confidence Index – March 2011

Respondents: 163

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?