The Future Still Looks Brighter than the Present to CEOs in the New Year

With the much-dreaded fiscal cliff crisis resolved by temporary measures, one might think that CEOs would be more optimistic about present conditions than those they anticipate in a year’s time. However, the latest CEO Confidence Index, Chief Executive’s monthly gauge of CEO expectations for overall business conditions over the next twelve months, rose 4.0% to a value of 5.29 out of a possible 10, while the Current Confidence Index, which measures CEO opinion on current business conditions, dropped 2.7% to a value of 4.93. This slight shift strengthens the trend hat has persisted roughly since the 2008 election: the CEO expectation of improved conditions in twelve months time. The trend had weakened in the last few months of 2012.

With an additional survey question not used in calculation of either index, we asked CEOs this January about their strategic business priorities for 2013. In an affront to the increasingly rapid development cycle for software, CEOs gave “Implementing new software tools” an aggregate rating of only moderate priority (5.62 out of a possible 10) – markedly low compared to the average rating (8.17) across all other categories provided, as well as compared to the category with the next lowest priority (“Building new partnerships,” 7.24). “Growing revenue” was the highest priority (8.97) from those provided, followed closely by a host of talent, profit, and client-related concerns. A primary emphasis on growing revenue was confirmed by free-response elucidation, where “revenue” was the most explicitly mentioned keyword in terms of both general business prioritization and prioritization of the CEO time spend.

Nearly half (45.9%) of CEOs consider their businesses to have missed performance expectations in 2012, while less than a third (28.9%) thought their businesses exceeded the same. Those that missed performance expectations cited, almost uniformly, the effects of economic and political conditions. Those that exceeded performance expectations provided a multitude of potential factors: hard work and great customer care; strong demand for successful product lines; a sector-specific economic lift; acquisition of top talent; low expectations to begin with; and “a bit of good luck.” There was a strong positive correlation between 2012 business performance relative to CEO expectation, the CEO’s rating of current (i.e. Jan. 2013) business conditions, and the CEO’s expectation of future (i.e. Jan. 2014) business conditions.

Breakdowns by company revenue size yielded some results worth mentioning. Companies with over $1 billion in revenue were the only ones with a majority of CEOs reporting surpassed business expectations for 2012; the plurality of companies in all other revenue categories met or were below expectations, with slightly better relative performance from the mid-market. In terms of priorities for 2013, mid-market CEOs had a significantly higher priority on attracting new talent, building new partnerships, improving internal processes, and implementing new software tools, and a slightly lower priority on developing new revenue streams, relative to CEOs of companies in higher or lower revenue ranges (which interestingly shared a highly similar pattern of priorities).

Selected Comments from CEO Survey Respondents

“We refused to participate in the recession.”

“There is a lot of optimism coming from our customers now that we have more certainty in the tax code.”

“Our ability to restructure on the fly has provided new opportunities to increase revenue and profits. I had to make these changes as the economy in other sectors has not shown the ability to recover enough to sustain our business.”

“Lack of confidence in the ability of our current state and national governments to be effective in defining and resolving problems and the operational burden created by increasing regulation of business and society are a serious drag on confidence, capital investment and employment.”

“I really blame the American people for reelecting the same people over and over again. They knew what they had and they still voted in the same lot. Shame on them.”

“Business is trending up a healthy rate; however we were so far down it will take a few years to return to levels that i would say are good.”

“When the President becomes more constructive, the country will grow again.”

“With Obamacare, increased taxes and the ripple effect thereof, we’re in for a slowdown.”

“The White House must become less adverse to business and job creators before business can grow.”

“We are particularly concerned with the movement of Chinese funds/purchases within the U.S. Not only do we face a talent movement out of the country but a deliberate and well thought-out purchase of physical assets within the U.S. and Canada.”

“2013 tax increases and the foreseen 2014 tax hikes along with escalating medical costs will likely place pressure on the company’s ability to remain competitive for top labor talent or constrain the resources the company needs to execute.”

“As of October our forecasts were extremely positive. Now our customers are extremely cautious.”

“Businesses that are profit-motivated are over-regulated and over-taxed.”

“We expect a modest first half as congress continues to debate the debt ceiling which will restrain consumer demand but once that is settled (and we’re confident that it will be) we expect a more robust second half as consumer confidence rises again. There is very strong, pent-up demand!”

“Four more years of increasing regulations, choking business growth and reducing much chance of increasing the number of jobs that is desperately needed to improve the economy. The business owners are Notre Dame and Washington is Alabama. We don’t have much chance.”

CEO Confidence Index — January 2013

Respondents: 218

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?