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CEO Confidence Slides; Moderate Job Growth Expected

U.S. chief executive officer confidence dropped sharply this past quarter after previously hitting an all-time high earlier this year. But CEOs indicated they will continue to hire at a moderate pace, according to the latest YPO (Young Presidents’ Organization) Global Pulse Index, revealed first on CNBC.

PhotoAlto| Alix Minde | Getty Images

To come up with the index, CEOs are asked questions about expected and most-recent-quarter sales, employee numbers, fixed investment and business conditions. These results are tabulated, with the index centered on 50. More than 50 indicates a positive outlook, while below 50 indicates a negative outlook so the higher the number the more positive the outlook.

After hitting a record high of 65.1 in the quarter ending March 2012, the U.S. CEO Index fell to 60.0 this time around. That 5.1 point decline is the largest quarterly dip in the three years of the YPO Global Pulse’s existence. However, the 60.0 reading is still in optimistic territory.

Stephen Slifer, YPO Global Pulse economic adviser and chief economist at NumberNomics, said, “High gas prices, ongoing woes in Europe, and reduced growth in Asia — China in particular — no doubt dampened CEO optimism in the latest survey. While the 5.1-point decline was large, it was from a record-high level. The results seem to be pointing toward slower growth ahead and not a global contraction.”

The U.S. results were in line with the Global CEO Index, which also declined 4.1 points to 59.7. This drop followed two quarters of increasing global confidence. Among the nine regions of the world, the U.S. recorded the steepest drop in the latest survey. Confidence among European CEOs, which consistently has been the lowest in the index, slipped 2.8 points to 52.0.

Some other key findings of this quarter’s YPO Global Pulse (see charts below):

Fewer CEOs See Economic Improvement

Looking back at the last six months, 37 percent of CEOs say economic conditions have improved. This is down substantially from the previous survey, when 60 percent of CEOs said they believed the economy had improved over the prior six months. Those who say economic conditions have worsened rose to 25 percent from 8 percent in the previous quarterly survey.

U.S. CEOs Show Concern

Looking ahead, only 40 percent of chief executives think economic conditions will get better six months down the road compared to 56 percent in the previous quarter. Nearly one in five think things will actually get worse, up from 7 percent in the last quarter.

Job Growth Expectations Drop

The U.S. YPO Employment Confidence Index also declined, dipping to 59.1 from a record high level of 61.6. This indicates that U.S. CEOs expect to continue to add workers at a moderate pace during the next 12 months.

Sales Confidence Also Slipped

CEOs have softened their 12-month sales forecasts since last quarter, but the reading is still relatively high — down to 66.7 from a record high of 71.0.

Capital Spending Outlook Weakens

The 12-month investment also fell (down four points to 59.0 — off a record high of 63). However, this lines up with a global reading of 59.8, which indicates that investment opportunities are as attractive in the U.S. as they are in other parts of the world.

“A drop in [overall] confidence following the second quarter was not surprising, but the magnitude of the decline was perhaps somewhat larger than expected … while U.S. business leaders are less enthusiastic than they had been, they remain relatively optimistic,” said Alan Zafran, partner of California-based investment adviser Luminous Capital and a member of YPO’s Global One Chapter.

YPO Global Pulse Index Methodology: The quarterly electronic survey, conducted during the first two weeks of July 2012, gathered answers from 1,659 chief executive officers across the globe, including 664 in the U.S. Globally, 28 percent of participants are from large companies (more than 500 employees), 37 percent from medium-sized companies (100-500 employees), and 35 percent from small companies (less than 100 employees). By business sector, 24 percent of participants are from the production sector, 9 percent from construction and 67 percent from the services sector.

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 Executives Networks” are made up of a sample of YPO’s global network of 20,000 top executives from 120 countries who are on the frontlines of the economy and run companies which collectively generate $6 trillion in annual revenues.

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