Washington, DC, September 18, 2006--Business Roundtable’s third quarter 2006 CEO Economic Outlook Survey shows that America’s leading companies are expecting slower growth over the next six months, with lower expectations for expansion in sales, capital spending and employment. As a result, the CEO Economic Outlook Index stands at 82.4, a decline from the second quarter reading of 98.6.
In a special question posed to assess the direct effects of higher input costs including energy and commodities prices, CEOs reported a significant variation in how their companies have been impacted.
Business Roundtable is an association of chief executive officers of leading corporations with a combined workforce of more than 10 million employees and $4.5 trillion in annual revenues.
“The outlook of the CEOs in this survey suggests that the pace of growth in the U.S. economy is slowing down following a period of historically strong economic expansion,” said Harold McGraw III, chairman of Business Roundtable and chairman, president and CEO of The McGraw-Hill Companies. “Although the CEOs’ projections for sales, capital spending and employment still indicate positive growth, we believe that we are beginning to see the effects of energy and interest rate pricing pressures reflected in the business outlook.”
On overall economic growth, CEOs are assuming 3 percent GDP growth in 2006, a rate near the average GDP growth rate of 3.1 percent for the past 35 years. By comparison, GDP growth was 3.2 percent in 2005.
“This annual GDP growth projection of 3 percent signals a belief among Business Roundtable CEOs that the economy will continue to grow at a rate in line with the historical average,” continued McGraw. “This outlook marks a decline from previous readings to a level that most economists believe will allow continued growth while keeping inflation in check.”
Direct Impact of Inflationary Pressures Mixed Among Companies
In response to a special question asking CEOs to assess how their companies have been directly impacted by higher energy and commodities prices, CEOs reported significant variation. About 21 percent of the companies said they have been mainly able to pass increased energy prices along to their customers, while another 33 percent said they were only partially able to pass along these increases.
However, nearly a quarter of the companies--23 percent--reported that they have absorbed almost all of their higher energy costs, which may have a significant impact on their profitability. Another 23 percent reported that higher energy costs were not materially impacting their businesses.
“The range of responses to this question on pricing pressures shows that not all companies are able to pass higher energy and commodities prices through,” said McGraw.
CEO Economic Outlook Index Signals Slower Growth
The CEOs’ economic projections resulted in a CEO Economic Outlook Index reading of 82.4, a decline from the second quarter reading of 98.6. Although a slower reading from recent surveys, this projection remains well above the level that would signal a contraction of the economy.
The CEO Economic Outlook Index combines the responses on projected sales, capital spending and employment into an overall index that shows how the CEOs believe the U.S. economy will perform in the six months ahead. It is a diffusion index centered on 50, which means anything above 50 is expansion and anything below 50 is contraction.
“While the outlook for sales, capital spending and employment among our member companies is still in the positive range, it appears that the inevitable impacts of energy prices and interest rate increases are beginning to take hold on the economy by tempering companies’ outlook, especially in the area of capital spending,” McGraw concluded.
