"The data clearly indicates a much more cautious outlook among CEOs," said Richard Curtin, Ph.D., a consultant for the Vistage Confidence Index and director of consumer surveys at the University of Michigan. "CEOs are already beginning to modestly scale back their plans for future growth of their businesses, as they expect to reduce the pace of investment spending and add slightly fewer new employees during the year ahead."
Although a worsening economy was anticipated, CEOs viewed their own prospects for growth, revenue and profit only marginally less positive than the previous quarter. The small decline in CEO expectations about revenue and profit growth in the year ahead, however, was enough to make this the least favorable outlook recorded in the three years of the Index.
"We're seeing a significant shift from what had been a very bullish attitude toward one that is much more measured," said Dan Barnett, Chief Operating Officer of Vistage International. "When CEOs start talking about scaling back on growth plans, the economic mood is certainly darker than it was even just last quarter."
Economic Growth Falters
For the first time in three years, more CEOs reported that overall economic conditions had worsened over the past year. Overall, 32 percent of all CEOs reported that the economy had worsened, up from just 19 percent in Q2. Just 19 percent expected rapid economic growth, down from the peak of 81 percent at the close of 2003.
Cautious Investment Plans
CEOs were somewhat less likely to plan investments in new plants and equipment in the 3rd quarter. Although the planned investment index fell by just 10 percentage points, this was the largest drop recorded in three years. Overall, 45 percent of CEOs intended to increase investment spending, down 6 percent from Q2, and the lowest level recorded in three years.
Slow Revenue and Profit Growth Expected
Although nearly half of all CEOs expected to increase prices charged for their products and services, few expected they could completely offset higher energy, material and labor costs. Even with higher prices, CEOs expected a softening of revenue growth during the year ahead. A slowdown in profit growth is also expected considering one-third of all CEOs reported they would have to absorb the higher costs.
Staffing Remains Critical
Although the proportion of CEOs expecting to add additional employees fell slightly in the 3rd quarter of 2006, finding qualified employees was reported by one-third of all CEOs as their top concern. Hiring and retaining qualified employees was mentioned more than twice as frequently as other problems, from high costs of energy and health care to rising interest rates and falling real estate prices. "It's important to note that just eight percent of all firms in the 3rd quarter report the intention to reduce employees, indicating that there is not yet strong evidence to support a significant downward turn in the economy," said Barnett.
Two in Three CEOs Concerned About Global Warming
Sixty-five percent of CEOs were concerned or significantly concerned about global warming. However, only seven percent cited rising energy costs as the most important issue facing their business.
Internet Now Equals Newspapers as First Choice of News
As many CEOs turn to the Internet for news as do CEOs who choose newspapers first. An equal 31 percent report either the Internet or the newspaper as their primary means of receiving news and information.
about the Vistage Confidence Index
U.S. small and mid-sized businesses represent the most vital component of the nation's economy. This sector creates 75 percent of all new jobs and generates 50 percent of all national revenue. The opinions of these business leaders provide a clear snapshot of current economic, market, and industry trends and demonstrate their plans for growth over the next 12 months. These insights provide a leading indicator for employment, capital expenditure, sales and revenue trends.
The Q3 2006 Vistage Confidence Index is a compilation of responses from 1,939 CEOs of small- to mid-sized companies, surveyed August 16-24, with a margin of error of 1.9 percentage points. The Vistage Confidence Index is the only comprehensive report of their opinions and projections.
