CEO Economic Confidence Rebounds: Firms expect slower growth in 2007
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Tony Vignieri
Vistage International
858.509.5882
tony.vignieri@vistage.com
(San Diego, Calif.), Dec. 5, 2006 – Chief executives of small and mid-sized businesses expect the economy to improve in 2007, although at a slower rate of growth than in 2006, according to the Vistage Confidence Index, a quarterly measure of economic, market and industry trends. CEOs report the least expansive investment plans and expect the smallest growth in their revenues since the survey first began in 2003.
The Vistage Confidence Index rose to 93.0 in Q4, 2006, up from a three-year low of 89.3 in Q3. The small gain signals that CEOs think the recent slowdown in the pace of economic growth has ended. Nearly 2,000 CEO members of Vistage International, the world's leading chief executive organization, responded to the Q4 survey.
“Despite concerns about the change in Congress, the impact of the housing slump and staffing concerns, CEOs believe we’ve reached a soft landing,” said Richard Curtin, Ph.D., a consultant for the Vistage Confidence Index and director of consumer surveys at the University of Michigan. “However, they anticipate that it will take some time to restore a more robust pace of economic growth, and they are not expecting the situation of their own firms to substantially improve during 2007.”
Firms reported that finding qualified employees was their toughest challenge during 2006 and they anticipate it will be an even bigger challenge during 2007. Fifty-six percent of CEOs surveyed anticipate a negative impact to the economy based on the change of power in Congress, compared to 22% who predict a positive effect. Additionally, 52% expect the softening of the housing market will have a negative impact on their businesses.
"The upward trend in the Index is the first sign that CEOs think the worst is behind us,” said Dan Barnett, Chief Operating Officer of Vistage International. “But clearly they’re a long way from declaring this a healthy, thriving economy.”
Slow Growth Expected
In contrast to sharp declines in the outlook for the economy recorded during most of 2006, firms are more upbeat about growth prospects in the fourth quarter. Overall, 35% of CEOs believe that a turnaround in the economy has already occurred, and 22% expect continued improvement during 2007.
Staffing Remains Critical
Finding and hiring qualified staff was cited as the most critical challenge for more than one-third of all firms. Finding qualified employees was cited more frequently than any other issue, including the costs of energy and healthcare or uncertainty about the housing market. Just over half of all firms plan to add jobs, slightly lower than in prior years.
Cautious Investment Plans
Planned increases in investment spending were reported by 45% of CEOs, down from 50% one year ago and the peak of 57% recorded two years ago. These more cautious investment plans mean that nearly four-in-ten firms plan to hold their investment spending at current levels. Fewer firms plan to actually reduce their spending during the next 12 months.
Profit Growth Expected
Nearly three-in-four firms expect higher revenues during 2007 and are more optimistic about their anticipated profit growth in the fourth quarter. Overall, 61% of firms anticipate higher profits in 2007, between the 57% recorded last quarter, and the 67% recorded in last year’s fourth quarter survey.
China Seen as Opportunity and Threat
When asked what the impact of China’s growing economy will be on their businesses, CEOs were decidedly mixed -- 31% see it as an opportunity, while 21% perceive China as a direct threat to their businesses. Forty-eight percent do not believe China will have any impact on their businesses.
Business Comes First for U.S. CEOs
Nearly twice as many CEOs prefer more success with their businesses over more time with their families in 2007. When asked what their primary wish was for the coming year, 49% wished for business success, while 24% chose more family time. Just 11% wished for improved health.
Vistage Confidence Index Components
| Q3 2005 | Q4 2005 | Q1 2006 | Q2 2006 | Q3 2006 | Q4 2006 |
Current Economic Conditions | 124 | 115 | 134 | 125 | 94 | 114 |
Expected Economic Conditions | 91 | 108 | 122 | 101 | 84 | 96 |
Expected Change in Employment | 154 | 156 | 159 | 152 | 149 | 148 |
Planned Fixed Investment | 139 | 139 | 144 | 141 | 131 | 128 |
Expected Revenue Growth | 172 | 177 | 178 | 171 | 167 | 166 |
Expected Profit Growth | 154 | 159 | 160 | 152 | 144 | 149 |
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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% of all new jobs and generates 50% 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 Q4 2006 Vistage Confidence Index is a compilation of responses from 1,842 CEOs of small- to mid-sized companies, surveyed November 9-17, with a margin of error of 1.9 percentage points. The Vistage Confidence Index is the only comprehensive report of their opinions and projections.
about Vistage International
Vistage International and its affiliates have more than 13,000 members in 15 countries representing the world’s leading chief executive organization based on revenue. Vistage members generate nearly $300 billion in annual revenue and have more than 2.1 million employees around the world. Vistage is dedicated to increasing the effectiveness and enhancing the lives of chief executives. Member companies are better run and grow their revenues, on average, at twice the percentage growth rate after joining Vistage.
Vistage affiliates include TEC, The Executive Committee and The Executive Connection in the following areas: Florida, Michigan, Wisconsin, Argentina, Australia, Canada, Brazil, Chile, Germany, Mexico, Malaysia, New Zealand, Singapore and South Africa.