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A good reason for panic? US CEOs can't find one

Our world is experiencing no shortage of headline-grabbing concerns. Geopolitical tensions surrounding the Ukraine conflict and Russian sanctions, the emergence of ISIS, social protests in Hong Kong and the spread of the Ebola virus are all reasons to shake one's confidence.

And business confidence among CEOs in the world's biggest economy did edge down 0.6 points, to 64.2, in the latest YPO Global Pulse Confidence Index. Nevertheless, U.S. CEOs remain upbeat and resolute in their longer-term outlook.

As fears from Ebola and a global slowdown spread, stocks plunged on October 15, with the Dow falling more than 400 points during the afternoon before recovering slightly.
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As fears from Ebola and a global slowdown spread, stocks plunged on October 15, with the Dow falling more than 400 points during the afternoon before recovering slightly.

To be sure, the problems abroad are weighing on global economic growth. Japan is struggling to reverse 20 years of deflation. Europe is trying to avoid becoming "the next Japan." China just posted its lowest year-over-year growth rate in five years, and other emerging markets, dependent on exporting goods to developed-world countries, are likewise slowing.

Looking forward for the next 12 months, though, the YPO Global Pulse research finds:

  • 71 percent of U.S. CEOs anticipate sales increases in excess of 10 percent; only 4 percent see a sales decrease in excess of 10 percent.
  • 44 percent of U.S. CEOs anticipate increasing their employee headcount by greater than 10 percent; only 5 percent see a headcount decrease in excess of 10 percent.
  • 45 percent of U.S. CEOs anticipate capital expenditure increases in excess of 10 percent; only 5 percent see capital expenditure decreases in excess of 10 percent.

Wasn't it only one month ago that Federal Reserve governors were debating the speed at which they should raise the Fed Funds rate? What happened? Why are the financial markets suddenly obsessed with the risk of a synchronized economic recession?

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For one, there's the strong dollar. The U.S. currency has appreciated more than 5 percent relative to a basket of foreign currencies since July. This makes American products more expensive for foreigners to buy, and it also means that multinational companies based in the U.S. are translating foreign revenues that are generated in weaker currencies back into less U.S. dollars. The fear is that this currency exchange will impair corporate profitability.

Nevertheless, through October 21, 79 percent of the S&P 500 companies have reported quarterly earnings above estimates, and 60 percent exceeded revenue estimates as well.

"That recent 50-cent-per-gallon drop in the price of gasoline you've noticed is effectively a tax break for America's citizens."

Moreover, can you guess what declining interest rates forebode? Another wave of mortgage refinancings. This is the gift that just keeps giving. Homeowners may soon find themselves with lower monthly mortgage payments, which translates into increased purchases of American-made goods and services.

In addition, that recent 50-cent-per-gallon drop in the price of gasoline you've noticed is effectively a tax break for America's citizens. Given that consumers generate 70 percent of America's economic activity, economists estimate that the drop in gas prices will add 0.5 percent to GDP for 2015 if gas prices remain at today's level—not a bad by-product of weaker oil demand from abroad.

Maybe it's because jobless claims just hit a 14-year low. Maybe it's because the unemployment rate is below 6 percent. Maybe it's because U.S. consumer confidence is at a seven-year high. Maybe it's because S&P 500 Index earnings are projected to grow 6 percent for the third quarter of 2014.

For whatever reason, U.S. CEOs have not been shaken by the recent global equity market selloff and remain optimistic about the U.S. economic outlook.

By Alan Zafran, senior managing director, First Republic Investment Management and a member of the CNBC-YPO Chief Executive Network

The U.S. portion of the YPO Global Pulse index is based on a survey conducted among more than 1,000 U.S. CEOs during the first two weeks in October regarding the pace of their companies' sales, hiring plans and capital expenditures, both in the most recent quarter and prospectively over the next year.

About YPO

CNBC and YPO (Young Presidents' Organization) have formed an exclusive editorial partnership consisting of regional Chief Executive Networks in the Americas, EMEA and Asia-Pacific. These Chief Executive Networks are made up of a sample of YPO's unrivaled global network of 20,000 top executives from 120 countries who are on the front lines of the economy. The opinions of Chief Executive Network members are solely their own and do not reflect the opinions of YPO as a whole or CNBC.