Dallas, TX, October 7--Top U.S. executives are pessimistic about next year's economy, citing high oil prices, geopolitical threats and stuttering consumer confidence, according to a survey released on Wednesday.
About 70 percent of the chief executives surveyed by The Business Council projected flat to 2 percent U.S. economic growth, more bearish than forecasts from major economists.
The Business Council survey, often seen as a gauge of corporate sentiment, was released ahead of a meeting of the group's members -- 125 CEOs from companies such as DuPont Co., General Electric Co. and Procter & Gamble Co. About 50 CEOs responded to the survey.
"Generally CEOs are a bit more pessimistic," DuPont CEO and chairman Charles Holliday said at a news conference, referring to the difference of opinion between executives and economists.
The U.S. economy grew at a 3.3 percent annual rate in the second quarter, slower than the 4.5 percent pace of the first quarter. The latest Blue Chip Economic Indicator survey of major economists projected growth of 3.6 percent in 2005.
Some 58 percent of the CEOs surveyed expect the unemployment rate to fall modestly next year, ending at around 5 percent to 5.3 percent compared with the current 5.4 percent. But nearly half expect to keep hiring stable in 2005.
The executives also had a restrained global outlook, with only 19 percent expecting global growth to accelerate in 2005 from this year's levels.
China was again seen as the region with the fastest expected growth next year and one source of a spike in raw material demand that is hurting corporate profits.
"There is little pricing power at all in the industry," General Motors chairman and chief executive Rick Wagoner said at the news conference, referring to the difficulty of passing on higher raw materials costs. "That's definitely putting a squeeze at all levels. It's more challenging today than it was a year ago and I don't think next year at this point from what we see provides a lot of relief."
Climbing oil prices were one concern weighing on sentiment, but more than 70 percent of the executives think oil prices will fall below $40 barrel in 2005 -- down from the current level above $50, but still significantly higher than 2003 levels.
Most executives blamed the run-up in oil prices on strong worldwide demand, concerns about supply disruptions created by terror attack and worries about Russian oil company Yukos.
The executives were more positive about their own prospects. About half of the CEOs see profit growth accelerating next year, but 18 percent expect sales growth momentum in their companies to slow in 2005. None see an outright drop in sales.
A majority cited medical costs for their expectations that benefit costs will rise again. Only a third of the CEOs expect wages to increase, but roughly 80 percent expect capital spending next year to be at least as strong as it was in 2004.
Executives said the topics discussed at this week's meeting would include corporate governance issues such as board selections and succession plans, the competitiveness of the U.S. economy and the impact of next month's U.S. presidential election.
