SAN DIEGO, January 7, 2014 –CEOs in the latest Vistage survey held more optimistic economic expectations than at any other time in nearly two years. The largest 4th quarter gains were in CEOs’ evaluations of the overall economy, although revenue and profit expectations posted healthy advances as well. The Vistage Confidence Index was 101.5 in the 4th quarter of 2013, up from 97.8 in the prior quarter and well above the 87.0 recorded in last year’s 4th quarter.
“In the past several years, each time optimism has improved it has been promptly reversed by economic uncertainty caused by self-inflicted government crises. CEOs learned that the uncertainty caused by the D.C. follies could be mitigated by adopting more cautious economic expectations,” said Dr. Richard Curtin from the University of Michigan in his analysis of the survey results.
During the first three quarters of 2013, the Confidence Index hardly budged, hovering around 97.0. The end of the federal shutdown and the recent budget compromise has encouraged more optimism. The reduction in uncertainty had the largest immediate impact on assessments of the economy. As the pace of economic growth improves in the year ahead, firms will anticipate even greater gains in revenues and profits, leading to more hires and investment spending. Naturally, challenges remain on the horizon, including the debt ceiling and implementation of the Affordable Care Act.
Economy Gains Strength. Half of all firms in the 4th quarter 2013 survey reported that the economy had recently improved, and more importantly, more than one-third of all firms anticipated additional gains in the pace of economic growth during 2014. When asked to assess the current state of the economy, 52% reported in the 4th quarter of 2013 that the economy had recently improved, up from 46% in the prior quarter and just 35% in last year’s 4th quarter. Just 7% of all firms reported the economy had recently worsened. Prospects for the economy during 2014 also improved, with 38% of all firms expecting the pace of economic growth to increase, up from 30% last quarter and 26% in last year’s 4th quarter survey.
Higher Sales and Profits. Revenue gains during 2014 were anticipated by three-fourths of all CEOs, and six in ten expected higher profits in the year ahead. These expectations were as favorable as any time during the past six years, recapturing those same favorable levels for the third time since the Great Recession. Hopefully, sales gains will not again be blunted by renewed uncertainty due to the government lurching from crisis to crisis. Higher sales revenues were anticipated by 76% of all firms in the 4th quarter 2013 survey, up from 71% last quarter and 63% a year ago. Expanding profits were anticipated by 60% of all firms in the 4th quarter survey, up from 54% in the prior quarter and 49% in last year’s 4th quarter.
Robust Investment Plans. Planned increases in investments in new plants and equipment were reported by 43% in the 4th quarter 2013 survey, unchanged from last quarter but above last year’s 35%. Reductions in fixed investments during the year ahead were expected by just 11%, down from 20% in last year’s 4th quarter survey. Overall, investment plans were at their most favorable level in since the start of 2012.
Favorable Hiring Plans. Among all firms, 56% planned on expanding their payrolls during the year ahead in the 4th quarter 2013 survey, up from 54% in the 3rd quarter and 45% in last year’s 4th quarter. Hiring plans are now quite favorable; in only one other survey during the past six years were they more favorable.
Hiring is a Challenging Task. Just 11% of firms reported that finding qualified employees was an easy task even if the unemployment rate continues to fall, and eight in ten think it will not get any easier in the future due to the lagging performance of the U.S. education system. Uncertainty about future sales growth also complicates the process. More than eight in ten CEOs mentioned that their expanded hiring plans were contingent on sales gains, new orders, and an improved economic outlook. Fewer than one in ten cited the influence of taxes or regulations on their decisions. When asked to identify which tax or employer paid benefits were the most important, the overwhelmingly response was health insurance coverage.
about the Vistage CEO Confidence Index
The Vistage CEO Confidence Index, established in 2003, is a quarterly survey of small- to mid-sized business CEOs about the U.S. economy. The Q4 2013 Vistage CEO Confidence Index includes responses from 1,578 U.S. CEOs, surveyed between December 9 and December 18, 2013, with a margin of error of 1.6 percentage points. Since its establishment in 2003, the Index has proven to be a reliable harbinger for changes in GDP and employment, two to three quarters hence.