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Thursday, October 4, 2012

CEOs lowering expectations

The Business Round Table survey for this quarter is showing a major change in CEO expectations for the economy.  Check out this chart for the economic outlook six months out.

Source article

This was the third biggest drop on the chart.  The biggest drop was in response to the Lehman failure and panic crash.  The second biggest drop was in response to last year's debt down grade and panic crash.  Why the drop this time?  Here is an excerpt to explain it.

Washington – The results of Business Roundtable’s (BRT) third quarter CEO Economic Outlook Survey for 2012 show a further downturn in CEOs’ expectations for sales, capital spending and hiring for the next six months. The Business Roundtable CEO Economic Outlook Survey Index decreased to 66.0 in the third quarter of 2012 from 89.1 in the second quarter of 2012, the lowest reading since the third quarter of 2009 and the third largest single quarter drop in the survey’s history.

“CEOs foresee slower overall economic growth for 2012 and have lower expectations for sales, capital expenditures and hiring compared to last quarter,” said Jim McNerney, Chairman of Business Roundtable and Chairman, President and CEO of The Boeing Company. “The downshift in quarterly sentiment reflects continuing concern about the strength of the recovery, including uncertainty over the approaching fiscal cliff and accompanying debates about the tax code, sequestration and the debt ceiling.”

It is interesting that the survey showed more optimism last spring then at any time in the chart.  Did the economy look as good to you in the spring of 2011 as it did in the years between 2003 and 2007?  Not to me.  I think this is the normal human reaction to when times are bad.  Everybody is hopeful that better times are right around the corner.  The CEOs turned the corner and got a dose of reality later that year.  The survey seems to be affected by GDP growth rates more in a reaction mode then as a predictor.  I wish this chart went back to the beginning of the 2001 recession.  It looks like the economic outlook is down to recession like levels.  I suspect the low levels in late 2002 and early 2003 were coming up from lower levels caused by the 2001 recession.  However, I don't know that for sure.

Here is a look at the employment chart.

The employment part of the survey seems to be more correlated with the payroll data.  I don't know why the chart isn't more up to date with the payroll.  This could be a big warning sign about the employment picture down the road. 

Here are the charts for Cap Ex and sales.

One thing is clear.  The CEOs surveyed are feeling a lot more uncertain then at any time since this recovery began.  I can understand that with the mess in Washington and the global economy.  The most important question here is will companies cut back on hiring.  That is a distinct possibility with the way the CEOs are feeling about things.  The next question is will the usual fourth quarter pick up in capital expenditures be likely to be lower then normal.  That is often one of the first expenditures cut back when uncertainty arises.  I think the stocks of INTC, HPQ, and DELL are reflecting the possibility there will be less computer buying into year end this time.  A lack of action in Washington could be trouble. 


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.