A key indicator that measures chief executives’ confidence in the economy fell below 50 for the first time in nearly five years, signaling a disappointing outlook for 2007, The Conference Board reported today in a third-quarter survey.
The Chief Executives’ Confidence Measure, which had fallen to 50 in the second quarter of 2006, dropped to 44 in the third quarter, the lowest reading since the final quarter of 2001 when it registered 40. A reading of more than 50 points reflects more positive than negative responses. The survey includes about 100 business leaders in a wide range of industries.
“The lack of confidence expressed by CEOs is a result of the recent slowdown in economic growth, combined with expectations that this lackluster pace of growth will carry over into the beginning months of 2007,” said Lynn Franco, director of The Conference Board Consumer Research Center.
CEOs’ assessment of current conditions weakened further in the third quarter. Now, only 16 percent of CEOs claim the current economic environment is better, down from about 27 percent in the second quarter. In assessing their own industries, business leaders were less upbeat, as approximately 28 percent say conditions are better, compared with 40 percent in the last quarter.
CEOs are also less optimistic about the short-term outlook. Now, only 16 percent of business leaders expect economic conditions to improve in the coming months, down from 21 percent last quarter. Expectations for their own industries were also less positive, with 20 percent anticipating an improvement, down from 31 percent last quarter.
Some 28 percent of business executives report increases in their companies’ capital spending plans since January of this year, while only 9 percent have scaled plans back, based on a supplementary question asked each year in the third quarter. This is a moderate change from the 2005 survey, when 34 percent of chief executives had increased their capital spending plans and 12 percent had made cuts. Among the reasons given for increasing capital investment plans, the most common was an increase in sales volume. A decline in sales volume was the most cited reason for a decrease in spending plans.