Survey Finds CEO Optimism Reaches 2-Year High
SAN DIEGO -- Optimism among the nation's chief executive officers reached a two-year high in the fourth quarter of 2013, says the Vistage Confidence Index. The largest gains were in CEOs' evaluations of the overall economy, although revenue and profit expectations posted healthy advances as well.
Vistage, founded in 1957, assembles and facilitates private advisory boards for CEOs, senior executives and business owners.
Its confidence index was 101.5 in the quarter, up from 97.8 in the quarter before and well above the 87 recorded in the same quarter of 2012.
"In the past several years, each time optimism has improved it has been promptly reversed by economic uncertainty caused by self-inflicted government crises," Richard Curtin of the University of Michigan said of his analysis. "CEOs learned that the uncertainty caused by the D.C. follies could be mitigated by adopting more cautious economic expectations."
During the first three quarters of 2013, the confidence index barely budged, hovering around 97. The end of the federal shutdown in October and the recent budget compromise has encouraged more optimism. The reduction in uncertainty had the largest immediate effect on assessments of the economy. As the pace of economic growth improves this year, firms will anticipate even greater gains in revenues and profits, leading to more hires and investment spending. However, Curtin said, challenges remain, including the debt ceiling and implementation of the Affordable Care Act.
Half of the firms surveyed reported that the economy had recently improved, and more important, more than one-third anticipated additional gains in the pace of economic growth. When asked to assess the state of the economy, 52% reported it had recently improved, up from 46% in the quarter before and just 35% the same quarter a year ago. Just 7% reported the economy had recently worsened. This year’s prospects for the economy also improved, with 38% expecting the pace of growth to increase, up from 30% last quarter and 26% a year ago.
Just 11% of firms reported that finding qualified employees is an easy task even if the unemployment rate continues to fall, and eight in 10 think it will not get any easier in the future because of substandard performance of the U.S. education system.
Uncertainty about sales growth also muddies the waters. More than eight in 10 CEOs mentioned that their expanded hiring plans were contingent on gains in sales, new orders, and an improved economy. Fewer than 10% cited the influence of taxes or regulations on their decisions. When asked to identify which tax or employer paid benefits were the most important, the overwhelmingly response was health-insurance coverage.
Three-quarters of all CEOs anticipate revenue gains this year, and six in 10 expect higher profits. These expectations were as favorable as any time during the past six years, recapturing those same favorable levels for the third time since the Great Recession. Higher sales revenues were anticipated by 76% of all firms, up from 71% last quarter and 63% a year ago. Expanding profits were anticipated by 60% of all firms in the fourth-quarter survey, up from 54% in the third quarter and 49% last year.
Planned increases in investments in new plants and equipment were reported by 43%, unchanged from last quarter
but above last year's 35%. Reductions in fixed investments this year were expected by just 11%, down from 20% in last year's survey. Overall, investment plans were at their most favorable level in since the start of 2012.
Among all firms, 56% planned on expanding their payrolls during the year ahead, up from 54% in the third quarter of last year and 45% in the fourth quarter of 2012. Hiring plans are now quite favorable; in only one other survey during the past six years were they more favorable, the survey found.
Published by The Business Journal, Youngstown, Ohio.
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