Oswald Letter

Top CEOs Show Some Reason for Optimism

On June 23, the Business Roundtable released its Second Quarter 2009 CEO Economic Outlook Survey and there is reason for some optimism. While it’s not all blue skies and sunshine, it does appear that the storm clouds may be clearing. Good news is rare these days so I thought the survey was worthy of some attention.

First a little about the Business Roundtable and the survey. The Business Roundtable is an association of CEOs of leading corporations, representing a combined workforce of nearly 10 million employees and more than $5 trillion in annual revenues. The CEO Economic Outlook Survey, conducted quarterly since the fourth quarter of 2002, provides a glimpse into the economic outlook of the member companies.

Now more about the second quarter 2009 survey. As I mentioned, the survey showed signs of optimism after recording its lowest index number in the history of the survey during the first quarter of 2009. The index, which can range from a negative 50 to a high of 150, hit an all-time low of -5.0 at the end of Q1 2009. (An index reading of 50 or lower is consistent with overall economic contraction and a reading of 50 or higher is consistent with expansion.)

From the survey’s inception in 2002 through Q3 of 2008, the average index was right around 90, so when it fell to 16.5 in Q4 2008 from 78.8 in the previous quarter it marked a new low for the index. But things got worse in Q1 2009 with the survey recording its first-ever negative index number at -5.0. So when the most recent survey was released and the number had risen back into positive territory it provided some hope for a better tomorrow.

Here are some of the key numbers from the second quarter 2009 survey:

  1. Sales. 34% of CEOs surveyed predict that sales will increase during the next six months. That’s up 10 percentage points from the previous quarter. More than a third of the CEOs are predicting an increase in sales in the coming two quarters and 20% predict no change in sales. That means half the companies in the survey are predicting flat to growing sales. That’s a marked improvement when you consider that only 33% of the CEOs felt the same way just three months earlier.
  2. Capital spending. There was also an increase in the number of CEOs who anticipate their capital spending to increase in the next six months, albeit that only 12% of those surveyed hold this view. That’s up from 9% in the previous report. But again, those who anticipated no change in capital spending are a big part of the story. The combination of those who were predicting to spend more or the same amount in the coming two quarters rose to 49% from just 34% in the previous quarter.
  3. Employment data. The employment numbers were a bit more mixed. Only 6% of CEOs surveyed expected their company’s U.S. employment to increase in the coming two quarters, which was down one point from 7% in the Q1 survey. However, at the end of the first quarter, 71% of the CEOs surveyed felt that their number of U.S. employees would actually decline, and the percentage of CEOs that held this view had dropped to 49% by the end of Q2. Again, the combined percentage of those expecting employment to remain unchanged or increase actually were a majority of the CEOs surveyed at 51%.

One thought. It might be interesting to track your own company’s outlook against that of the CEOs surveyed by the Business Roundtable. How do your projections on sales, capital spending, and employment compare with those included in the survey? While I’m not sure how you might use the data, it’s an easy thing to do and after a number of quarters you may see some trends that will help in your business.

The bottom line is that things certainly aren’t great. An overall index of 18.5 still shows a contracting market, but the numbers are moving in the right direction once again. When the largest U.S. companies see an uptick in sales, expect to make more capital expenditures, and have neared the bottom of the downsizing cycle, things are bound to improve across the entire economy. I, for one, have my fingers crossed for more good news next quarter.

Leave a Reply

Your email address will not be published. Required fields are marked *