CEOs are Cautiously Optimistic

Last updated on May 13th, 2019 at 02:36 pm

Let’s start with the big picture. More than 1,650 TEC (The Executive Committee) CEOs were polled across the United States, representing the views of small- and medium-sized businesses.

Overall, the TEC Confidence Index, which is the only available single barometer of their opinions, rebounded slightly from 96.9 to 99.2 in the fourth quarter. To put this in perspective, the Index was at 111.8 at the end of 2004.

The components of the Confidence Index signal what TEC members predict will unfold economically in the months ahead. Specifically, about one-third of those surveyed expect economic conditions to be better in the next 12 months than now. A little more than one-third see no change. And less than one-fourth see worsening conditions.

Wisconsin CEOs are slightly more optimistic, with 43 percent expecting improved business conditions in 2006, and about the same number seeing no change. Nineteen percent expect 2006 to be worse than 2005.

"Prospects for the economy have improved substantially from the lows recorded immediately following the Gulf Coast hurricanes and the surge in gas prices," said Dr. Richard Curtin, a consultant for the TEC Confidence Index and director of consumer surveys at the University of Michigan. "Firms are much more optimistic about their own prospects in 2006, as they expect strong growth in revenues and profits."

Still thinking in terms of the big picture, TEC CEOs report a drop in concern about oil prices, and a feeling that the effects of Katrina will be absorbed without much economic impact. There remains steady concern about rising interest rates, the federal deficit, and Chinese imports. There seems to be a "business as usual" attitude about the Fed’s new leadership.

Let’s take a look at some specifics. Investment in fixed capital items is always a measure of business confidence in the future. About half of the TEC International and TEC Wisconsin sample see increases by their firms in the next 12 months. Only 12 percent report an expected decrease. That’s good news.

On the subject of revenue, profit and price increases, believe it or not, for the first time since I have been reporting these survey results, Wisconsin comes out on top – not by much, but on top. Seventy-seven percent of the Wisconsin CEOs surveyed expect revenue increases in 2006, while 67 percent see improved profitability and 58 percent plan to increase their prices. More good news.

Another key economic barometer is hiring practices. Sixty-one percent of the TEC International sample and 57 percent of Wisconsin TEC CEOs expect to add employees in 2006. About 5 percent of both groups see employee reductions. I’ll put this in the good news category as well. Incidentally, most of the hiring is scheduled to occur in the first half of 2006.

I finally detected an area where Wisconsin significantly differs from TEC International CEOs. The question was "What is the most significant business issue that you are currently facing?" Twenty-four percent of the TEC International group said it’s the cost of business (energy, raw material price increases, health care and worker’s comp). Forty-seven percent of the Wisconsin group mentioned that as the top concern.

This is a bit of a conundrum in my opinion. We come out on top with respect to sales, profit, and price increases, yet signal a strong alarm regarding the cost of making it all happen. I’ll take the high road on this one and suggest that TEC Wisconsin CEOs know how to play the game better under adverse playing field conditions.

The balance of the TEC survey deals with mostly opinion-related matters. I put it in the category of "what will happen will happen." It’s worth reporting.

Both groups are very concerned about rising interest rates and high fuel prices. About 10 percent of the TEC International group is worried about inflation, and about double that for Wisconsin respondents. Interestingly, very few of those surveyed are worried about the costs of the Iraq war.

Most all those surveyed agreed (by a three quarters majority in Wisconsin) that a windfall profits tax, targeted for the moment at the energy industry, is a bad thing. The change in chairmanship duties at the Federal Reserve is seen by most as either a non-issue or a mild positive effect.

A technology issue raised the question of the battle between Google and Microsoft for dominance of Web-based software and file sharing and the implications on the cost to business. About three-quarters of the International and Wisconsin groups see no effect or a mild positive effect.

President George W. Bush recently signed an agreement limiting the import of textiles from China. Regarding Chinese imports in general, about a quarter of both groups vote in favor of limiting imports from China in all industries. Another quarter think import restrictions should be limited to industries experiencing significant pressure from imports. And interestingly, better than one-third of the International and Wisconsin TEC respondents believe no steps should be taken to limit Chinese imports.

Finally, in response to the question about how 2005 holiday bonus/gift practices will compare with year-end 2004, about a quarter of both groups report they will be higher. Exactly 49 percent say they will be the same, and another quarter say they will be smaller or not given this year.

All in all, there is more good news here than bad news. I find this encouraging for all of us as we get set to launch in 2006.

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