About 1,900 CEOs at small- and medium-size companies throughout the United States, including Wisconsin, aren’t quite as confident about the economy as they were three months ago.
However, they still predict economic expansion despite tight labor markets and higher costs for gasoline and other supplies.
The CEOs belong to TEC (The Executive Committee) in Wisconsin and Michigan, and the nationwide TEC group now known as Vistage.
Overall, the confidence index fell from 104.2 when they were surveyed in the middle of the first quarter this year to 97.8, in the middle of the second quarter. The confidence level reached its highest, at 111.8, in the middle of the fourth quarter of 2004, when the economy was in higher gear.
Richard Curtin, director of consumer surveys at the University of Michigan, interpreted the results.
"Firms anticipate the economy is slowing from its robust pace, but it will continue to remain positive," he said. "Overall, firms point to continued economic expansion amid tight labor markets and heightened cost pressures."
Let’s take a look at the items that comprise the index, noting differences between responding CEOs from TEC Wisconsin/Michigan and those from TEC/Vistage, the nationwide group.
Almost half of both groups believe that overall economic conditions in the United States have improved compared with a year ago. On average, 17 percent think conditions have worsened.
About one out of four CEOs in both groups say they expect to see conditions improve during the next 12 months. About half of them expect to see the economy stay the way it is.
One-half of the CEOs in the Wisconsin/ Michigan group and those nationwide predict increases in their capital expenditures over the next 12 months. In both groups, only 11 percent, on average, predict declines.
Three out of four members in both groups expect higher sales revenues during the next 12 months. Fewer than 10 percent see sales decreasing.
On average, 60 percent of both groups expect higher profits over the next 12 months. More of the Wisconsin/Michigan sample (15 percent) expect lower profits, compared with 10 percent of the nationwide sample.
Pricing is always an important barometer of business optimism. More than half of the CEOs in both groups expect to raise prices over the next 12 months, and less than 10 percent of the CEOs in both groups expect to lower prices.
Nationwide, 59 percent of the CEOs expect to add employees during the next 12 months, compared with 54 percent of the CEOs in Wisconsin and Michigan TEC. Only 7 percent of both groups expect to reduce the workforce.
Finding, hiring, training and keeping qualified employees remains the No. 1 concern of both groups, as it was a year ago. Financial concerns such as cash flow, financing and profitability are No. 2.
Twenty-eight percent of both groups are responding to higher energy costs by raising prices. Thirty percent are absorbing the higher costs. On average, 18 percent of both groups are conserving energy.
Asked if the Avian flu pandemic would have a significant negative impact, 39 percent of the companies nationwide said it would, compared with 31 percent of the TEC companies in Wisconsin and Michigan.
Interestingly, three quarters of both groups are taking no action to prepare for a potential flu pandemic. Results show that 13 percent of both groups, however, are developing contingency plans.
The results show that 19 percent of the Wisconsin and Michigan companies that responded said they don’t conduct business outside the United States, compared to 29 percent of the nationwide TEC sample. Countries or regions where most business is conducted by both groups include Canada, China, Europe and Mexico.
About one-half of both groups said that the proposed immigration reform bill would have no impact on their businesses. One-third of each group said there would be little impact. The bill would allow immigrants who have worked five years in the United States to apply for citizenship. It would require those who do not qualify to return to their native countries.
At some of our more recent TEC meetings in June here in Wisconsin, members say their own opinions are pretty much in line with the results of this most recent survey. But CEOs here say that in addition to fears about increasing oil prices, rising inflation or stagflation is a growing concern.
That the Fed will continue to raise the discount rate to fight inflation is all but a given, our members add. And, that will affect business confidence and the willingness of CEOs to invest in declining markets. The effects of a cooler housing market will also affect their confidence.
Several well-respected TEC economic resource specialists have been arguing for a year and a half that this year would be the last year of significant economic expansion. So, they favor higher prices and business "clean up" investments now rather than later.
It probably wouldn’t hurt to re-examine what measures we took when business slowed in 2003, dust them off and use them as early as the first quarter of next year. All indications are that the service sector may lag behind the manufacturing sector, but no sector will be exempt. These same economists argue that if the Fed would decide to reverse course, then the psychological effect of such a decision would re-ignite this slowing economy.
Until next month, may your own business confidence flame continue to burn strong.
