Recovery Not Around the Corner, say CEOs

Survey reveals optimism flagging among chief executives: investments in human capital now top priority.
Stephen TaubJune 20, 2002

CEOs of small and mid-sized companies have become less optimistic that the economy will begin to recover by the end of 2002. This, according to a quarterly survey by TEC International, an organization of CEOs of U.S. businesses with annual sales between $1 million and $1 billion.

In the first quarter survey, 86 percent of the corporate executives predicted the economy would recover by year-end. But, in the most recent survey, this optimistic group slipped to 77 percent of the respondents.

On the other hand, 22 percent of the polled CEOs expect a recovery in the first half of 2003. That’s up from 11 percent in the first quarter.

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In fact, 63 percent of the chief executives expect revenues to increase in the first half of 2003, and 16 percent say sales will increase by more than 20 percent.

Only 12 percent are expecting decreases of up to 20 percent, while a mere three percent expect sales to decline by more than 20 percent.

The TEC Index is a compilation of responses from more than 1,400 CEOs of small to mid-size companies.

Interestingly, chief financial officers appear to be more optimistic about the economy than chief executives. In CFO’s most recent Global Confidence Survey, a full 46 percent of finance executives polled say their attitude toward the domestic economy is either confident or very optimistic, up from 33 percent in the last quarter.

Respondents in the CFO Global Confidence Survey based the rosy outlook on expectations of healthy gains in profits and revenues at their own companies. Nearly 43 percent say they expect next quarter’s profits to beat those of the same period last year by more than 10 percent, and the same number predict revenues will jump by more than 10 percent.

According to the TEC index of CEOs, chief executives predict that the retail sector will lead the recovery. Thirty-three percent of the respondents expect that sector to rebound first –nearly double the 17 percent who felt this way in the first quarter poll.

Manufacturing slipped to second place from first, dropping three points to 26 percent; biotech remained in third place with 25 percent, a four-point increase in CEO confidence from the earlier poll.

The IT sector suffered the biggest loss in confidence, dropping five points to 21 percent for the second quarter.

Although telecom is expected to be one of the slowest recovering industries, 55 percent of CEOs surveyed believe that wireless communications will make the most significant technological advancements during the next three years.

Interestingly, fifty-one percent of the respondents cited investment in human capital as the most important business strategy to implement during the next six months for long term growth.

When asked to evaluate business lessons they have learned during the past 18 months of economic slowdown, 57 percent of the respondents said they would have responded faster to economic changes. Thirty-nine percent stated that they would have continued to invest in marketing efforts.