CEO Confidence on the Decline

HITTING THE LOWEST LEVEL SINCE JULY 2003, CEO confidence continued to decline  falling 2 percent to 127.5 points. The polling, which was conducted among 536 C-level executives, highlighted the divergence between the stock market and CEOs' reaction to the Fed rate cuts. Four of the five indices

of the CEO Index dropped in October, with the Investment Confidence Index recording the biggest plunge, falling 7 percent to 112.0 points. The only index that experienced an increase was the Employment Index--its first increase since July--rising 3 percent. However, CEOs are still cautious about future employment; 33 percent expect employment to decrease over the next quarter.

Moreover, the gap between CEOs' current and future confidence remained significantly wide, with the Future Confidence Index hovering around 37 percent lower than the Current Confidence Index, suggesting CEOs are wary of the ability of the economy to sustain itself. Terry L. Stall-cup, president and CEO, Ultimate Consulting, said, "I see our clients being skeptical of the market and being more conservative going into the last quarter."

In additional polling this month, CEOs were asked about the possibility of a recession. Twenty-five percent of CEOs indicated that they believed the likelihood of a recession in the next 18 months is greater than 50 percent; 75 percent said it was less than 50 percent; and 42 percent said that the chances of a recession were less than 25 percent.

According to survey respondents, top issues fueling expectations of a recession include the fallout from the subprime mortgage shake-up, housing market, rising cost of oil, a weak dollar and the burgeoning national debt.

Commenting on the overall economy, W.R. Price, president and CEO, Independent Builders Supply Association, said, "The impact of housing--compounded with fuel costs at record highs--and the continued spillover from the subprime meltdown has not been fully felt yet. The housing industry is one of the leading economic indicators as far as I am concerned, and unless we can get this 'motor' up and running again soon, I am certain we will see a continued decline in the national economy with joblessness taking the lead."