Rebounding slightly from November’s year low, the CEO Confidence Index, Chief Executive‘s monthly gauge of CEO expectations for overall business conditions over the next twelve months, rose 2% in December to a mean value of 5.09 (out of a possible 10). The Current Confidence Index, a measure of CEOs’ sentiment on current business conditions, also rose, up 4% to a value of 5.07. It’s the closest these values have been to parity since expectations for the future surged above present business assessments in 2009. On the whole, slight increases are planned for revenues and profits, while capital expenditures and employee count remain stable.
While several CEOs expressed hopelessness about the future of their businesses, a higher population of freeform respondents than in recent months reported qualitative gains. “Business is booming,” a mid-sized construction company CEO wrote, “we have our largest backlog of work and are having a hard time finding qualified engineering personnel to allow us to grow.” However, such responses were moderated in almost every case by a staying concern about the overall economy, despite short-term optimism for specific industries. “Business is strong,” wrote the leader of a small B2B IT firm, “but customers are very wary of how taxes are going to change, both as owners and as investors in their companies. While things are getting stronger, there is a great amount of fear out there.”
As anyone who has followed Chief Executive‘s CEO Confidence Index in the last few months would expect, CEOs largely blame that fear on the Obama administration and members of Congress, particularly the politicians’ continuing inability to adequately address fears of a “fiscal cliff.” Other salient concerns included the continuing high rate of unemployment, the lasting effects of drought in the midwest, and the uncertain effects of PPACA implementation. In particular, several CEOs noted plans to increase the proportion of part-time vs. full-time employees, in response to the expected effects of “Obamacare”.
Another consistent finding that has survived the election is the optimism of mid-sized companies vs. their larger and smaller counterparts. The December CEO Confidence Index was between 4 and 5 for companies over $1 billion in annual revenue and less than $10 million in annual revenue, while it was 5 or higher for every bracket in between. The Current Confidence Index was even more marked in favor of mid-sized companies, with a bell-shaped curve emerging from the data in terms of revenue vs. rating of current business conditions. Evidently, CEOs of mid-sized and moderately large companies are feeling the best about their businesses at the moment – with the caveat that ratings of 5 or 6 out of a possible 10 could only barely be considered votes of confidence.
Selected Comments from CEO Survey Respondents
“Any improvement is still dependent on creation of a significant number of private sector jobs. Without that, anything else is a waste of time and money. Penalizing the people with jobs will not create more jobs. Making it more difficult to start or operate a small business will not create more jobs. We have to accept a tax increase of some sort, but only a modest and fairly applied one.”
“Drought effect in the midwest will carry over into 2013. The overall economy is at a crossroads. The actions taken or not taken to resolve the fiscal cliff will impact most businesses. We have two plans for next year based on which direction our country goes. Pretty unsettling.”
“Until we have the issues of the ‘Fiscal Cliff’ behind us, it is very difficult to commit to future expenditures and plans.”
“I believe that after we get through the current tax situation with the needed changes, that people, businesses, and the economy at large will feel much better about the climate and begin to build more steadily.”
“Financing for commercial construction is back! Three years of backlog projects to work on – looks like this sector will stay busy for a while.”
“Slow growth economy at best. Implementation of health care and other regulations will have a negative impact on job creation.”
“My company has done exceptionally well, even during the worst part of the 2008-2010 recession. However, I believe that the overall business environment is marginal right now and will suffer significant retraction as a result of higher tax rates as governments at both federal and state levels squeeze more money out of the economy. I expect to see the negative effects of our governments’ misguided tax policies begin to damage the economy before the end of 2013.”
“Investments and profit depends on what action Washington bureaucrats take in addressing the national debt and their socialist policies.”
“My ‘good’ response to current business conditions and projection for next year is because our company is in the wireless telecom industry. This industry is in a solid growth mode due to smart phones and social networking demands on networks requiring upgrades. My outlook on the condition of the overall economy is not nearly so positive.”
“We are blessed to be in agriculture since it is experiencing continued growth. Nonetheless, Obama’s EPA and Interior Department continue to be extraordinarily anti-business and an ongoing struggle.”
“We expect U-shaped, or trough-like, conditions during the next 12 months. A softening has started in the industrial and heavy duty equipment market that is expected to be sustained for several months. A clawback in demand would then occur by the end of next year. At least, we are hoping the trough is contained to a half a year time frame.”
“My business is in the energy sector and I expect it to be relatively unchanged for the next several years. What I see as a very negative is the impact to our highly compensated employees who will be severely punished by impending income tax changes along with capital gains. Very disappointing.”
“Our customers tell us-coast to coast-that they have little confidence in Obama and will not be risking additional capital to expand while he’s in office. He’s just too anti-business and doesn’t care.”
“We are in a downward spiral where revenues are up but margins are down due to fierce competition. The infrastructure investments for efficiency haven’t been made, so we are forced to lay off people instead.”
“We do business in as many as 80 countries, we see a variety of strength and weakness depending on the region. A large portion of our business is in Europe and this area seems to face the strongest headwinds. In general we continue to invest in areas of product development as well organization development to face the challenges and prepare for a secure future. We see further reluctance and intense scrutiny to investment by our customers.”
“The question not asked is how many full-time employees will be reduced to part-time as a result of Obamacare. For us, as for many companies in the service industry, that is a key issue.”
“Expecting recession next year as Obamacare looms and companies hold off hiring and switch employees full time to part time.”
“We see nothing positive about the future of our business. We fear the unknown relative to the fiscal cliff outcome and the implimentation of Obamacare. It is very hard to project the future with the advent of these major events.”
“We should spend more on R&D and shrink M&A plays as the way to balance our corporate structures. Less M&A means more young companies maturing on their own rather than being swallowed up for a technology and the staff ending up on the unemployment line. The result is more people being employed and more healthy competition.”
“With interest rates continuing near zero, very large corporations are benefitting in ways that are not being reported. Their lower cost of borrowing provides competitive advantages over smaller, already struggling, companies. The government is effectively facilitating a competitive subsidy for the largest corporations and creating the opportunity for predatory tactics on an epic scale.”
“There is too much negative business news commentary from professional media and politicians that have never been business executives or run a real product business.”
“We are chugging along.”
CEO Confidence Index — December 2012
|November 2012||December 2012||Monthly Change|
|CEO Confidence Index||4.99||5.09||+2.0%|
What do you 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?