Uncertainty Remains after Election Results; CEO Confidence Index Drops to Year Low of 4.99

The presidential election has come and gone, and the result that surveyed CEOs had consistently expressed anxiety about has come to pass. It should therefore come as no surprise that the November CEO Confidence Index, Chief Executive’s monthly gauge of CEO expectations for overall business conditions over the next twelve months on a scale of 1 to 10, dipped below 5 for the first time this year with a value of 4.99.

What is surprising is that the Current Confidence Index, a measure of CEOs’ evaluation of current business conditions, experienced a slight uptick of 3.7% to a five-month high of 4.89. Here’s a possible line of logic: while CEOs in our surveys overwhelmingly express concern about the negative impact on business conditions that an Obama administration has had and continues to have, an additional concern since political campaigning began in earnest has been the uncertainty of the election outcome. Continuation of the political status quo removes some of the uncertainty about what to expect for the future – good or bad – making it easier to make good business decisions which anticipate that future.

Freeform responses show that if this is the case, CEOs aren’t about to admit it. Many of our respondents cite continuing uncertainty about future regulation and the impact of the “fiscal cliff” as a primary reason for a poor business outlook. Conditions have certainly not improved for a number of companies. “The result of the election nearly seals our fate,” wrote the CEO of one mid-sized industrial manufacturing company. “After nearly 56 years in business, there is a very good chance that by the end of next year we won’t be here.” Still, most respondents anticipate an increase in their firm’s revenues over the next 12 months, and nearly half anticipate an increase in profits. About a quarter forecast no change in these figures.

This month’s findings varied significantly by industry. “Very concerned about strength in manufacturing,” one respondent wrote; CEOs of manufacturing companies had ratings about 3% lower than the overall figure. CEOs of professional or financial services are yet less optimistic, with ratings 7% lower than the overall. A substantial boost to the index figure came from high tech, which gave ratings a whopping 30% higher than the average. “I think many segments of industry are doing quite well,” the CEO of a mid-sized IT company wrote, conceding that a few “still have extended ‘hangovers’ from the deepest parts of the recession.”

As with previous months’ surveys, annual revenue was also a key factor in optimism of outlook. Respondents from the largest companies (>$1B) and smallest companies (<$5M) were primarily responsible for bringing the Current Confidence Index below 5, with average ratings of 4.65 and 4.43, respectively. Mid-sized companies correspondingly had a somewhat higher rating of current conditions, but bucked a long-standing (and still-standing) overall trend by citing slightly lower expectations for future conditions than present conditions. Selected Comments from CEO Survey Respondents

“My crystal ball, which is no better than anyone else’s, indicates an economic environment in turmoil that will continue to hamper overall business conditions for the next several years. The successful companies will innovate better processes that add more value to their customers, thereby enabling them to take market share from others in a low overall growth cycle.”

“We expect our growth to be from picking up business from other companies that are tired of trying to compete in the business environment created by President Obama’s policies and the avalanche of regulations on our industry.”

“The election is a disaster for the US economy. We refrained from layoffs in the hope of positive change but will begin layoffs this quarter.”

“Many of our customers have lowered their forecasts in the last 60 days and the election results have done nothing to make them more optimistic. We have already cut our workforce by 10% as a result of softening orders/forecast.”

“Our company experienced a business disruption this year due to the unavailability of capital caused by the current economic climate and the anti-business positions of this administration. The medical device tax and an unresponsive FDA have caused venture financing in our sector to decline. Those investors still active are not investing in novel technologies. As a result we have terminated 90% of our employees and ceased most activities including our our nascent OUS commercial activities.”

“We have lost $3 million of new investment due to election outcome. We have agreed to review status in 6 months, but I fear that it is gone. May close doors in 2013. How’s my confidence? Not real good just now.”

“It’s one thing to tax companies on profits but taxing companies on revenue means some companies will hire less workers, others will invest less and some may become unprofitable instead of continuing to be profitable.”

“Obamacare is going to kill business for a decade!”

“We’re sort of within the confines of the doldrums. Congress gives lipservice to working together but I don’t see it happening thus the president can’t do anything. In the meantime international monetary conditions get worse.”

“We are waiting to see what the President and Congress do, if anything. The percentage increase in business is business already sold and starting in January. We expect to see most potential customers taking a ‘wait and see attitude’ also. We are girding for a cost containment program currently planned.”

“Dramatic improvements in size and revenues over the last 4 years. I anticipate a slowing during 2013, but still with decent improvements in revenue and profits. Four more years of development of the welfare state will begin to take a toll however.”

“Although the closest category was up less than 10%, I expect the increases to be 1-2% at most in all categories where an increase was noted. Much of the growth will be by adding lateral partners from smaller firms, which means their revenues will add to our revenues, but overall, the economic growth for the profession as a whole from the two sets will be relatively stagnant. Our growth from new hires will be less than 1%.”

“Government continues to believe they can create jobs. They only transfer wealth from one sector to the other, and most of the transferred resources are not being put to productive use. This must be addressed if the private sector is to once again gain confidence in the future.”

“There is a real possibility of another serious dip in the economy.”

“Agriculture, oilfield and mining are doing well; but, of course, President Obama would like to tax and regulate these industries beyond most.”

“The biggest cloud on the horizon for me and the businesses with which I consult is the so called ‘Fiscal Cliff.’ I am optimistic that, in the end, the politicians will protect their own best interests and will reach a compromise that serves the country and business community. Assuming that happens, we will continue to grow through 2013 with a bit of a slow-down in 2014 (Dodd-Frank, ACA, etc.) and then continue slow growth in 2015 or so.”

“The inability of Congress to get their respective acts together and work for the benefit of America and our citizens instead of their own narrow interests stops me and many business owners from being able to make any real long term plans. I would like to make a large investment in new equipment, but frankly will wait until we see how the ‘Fiscal Cliff’ scenario works out.”

“Certainly Obama hasn’t cured our many economic ills, but he helped avert a major financial crisis and I think the economy has stabilized considerably under his watch. I just hope the two parties can find a way to work together – it will be critical to our long term recovery. I am not optimistic.”

“This coming year will be the poorest in business history.”

“We have a federal government that is destroying the incentive to invest and grow in this country. Until this mind set changes the manufacturing sector will continue to grow overseas and be hesitant to grow in the USA. It is sad, but our new reality.”

“Our business growth opportunities are all outside of the US, and we are fully positioned outside the US to exploit them. Business conditions and prospects in the US are expected to fall.”

“We have a serious lack of statesman left in this country. Partisan zealotry may be great to get elected (shame on the electorate) but it doesn’t get anything actually done.”

“You can bet Obama will do everything possible to cement the electoral base for future Democratic policy protection. These include keeping the welfare rolls high, regulatory policies and regulators strengthened, unions cajoled to and liberal values protected. Sadly, this will lead to an extraordinarily long period of vilifying businesses, stifling entrepreneurs and economic growth. What a pity for America and our children!”

“Four more years of stress.”

CEO Confidence Index — November 2012

Respondents: 255

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?