December 2014: CEO Confidence Near Highest Levels Since 2008, Despite Drop From November

THE CEO CONFIDENCE INDEX, Chief Executive’s monthly gauge of CEOs’ expectations for business conditions over the next 12 months, dropped 4.2 percent from November to December, landing at 6.47 out of a possible 10. Though optimism took a tumble since November, this is still the second-highest rating CEOs have given since July 2007. The third and fourth quarters of 2014 have proven the most encouraging in the past decade, with the Index measuring 6.44 in September, 6.36 in October and 6.75 in November—all multiyear highs.

Perception of current conditions stayed virtually unchanged in December with a rating of 6.20 out of 10 compared to 6.19 the previous month. CEOs’ ratings of current conditions stayed above six for the fourth consecutive month—the first such streak since September 2008.

Despite the record-high ratings from CEOs, many respondents made cautious and critical comments. Many concerned the ongoing impact of healthcare spending, increased regulatory burden and a lack of trust in the leadership in Washington D.C. As the CEO of a large manufacturing company put it, “The White House and the bureaucrats are killing the economy and preventing the resurgence of the American spirit.”

The CEO of a mid-market manufacturing company provided commentary more in-line with the ratings received in the survey: “2014 was a record year and we anticipate 2015 to be even better. Sustainability projects are helping make a big difference in our profitability.”

When asked the forecast of their own businesses over the next year, 79 percent of CEOs said they anticipate revenue growth—nearly half of which are expecting growth more than 10 percent. Over half of CEOs surveyed plan to increase their firms’ headcount, as well as capital expenditures, in the next 12 months. Plus, fully two-thirds of CEOs anticipate growth in profitability next year. It is clear that despite the vocal segment who are concerned with the economic outlook,
regulatory policies and Washington gridlock, the vast majority of business leaders anticipate a boom year in 2015.

As has been the case for the past few years, CEOs of the smallest companies (less than $10 million in revenue) are the least optimistic cohort. Their average rating for expectations for business conditions over the next 12 months was 6.39, bringing down the overall average. CEOs of companies with $10 to $100 million in revenue provided an average rating of 6.51, and the biggest companies’ CEOs rated expectations at 6.49. It seems much of the recent gains have benefited the largest businesses. Optimism for the next year seems to be following this trend.

Based on our insight provided by CEOs, 2015 is shaping up to be the most productive and profitable year for American businesses since the financial crisis. Though concerns with government policies and uncertainty stemming from gridlock and the Affordable Care Act weighed heavily on CEOs minds for the past few years, optimism for the economy now seems to be in full bloom. The next 12 months could very well be the harbinger of a decade of economic boom.

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