Two-thirds of U.S. chief executives plan additional layoffs and expect sales to decline in the next six months as their confidence in the economy continues to fall, according to a survey released on Tuesday.
The Business Roundtable's quarterly CEO Economic Outlook Index fell to negative 5 -- the first negative reading in the survey's six-year history -- and down from a fourth-quarter reading of 16.5. A reading below 50 means CEOs expect economic contraction rather than growth.
The poll of 100 U.S. CEOs found they now expect real U.S. gross domestic product to decline 1.9 percent this year. That is below their December forecast, which anticipated flat GDP.
The group's head held out hope that the Obama administration's efforts to shore up the financial system and buoy the economy with a stimulus program may be beginning to pay off. But other economists argued that it was too early to call a turnaround.
While recently implemented policies need time to make an impact, they have already begun to restore confidence in our markets, which is obviously a critical first step, said Harold McGraw, who serves as Roundtable chairman and is also chief executive of publisher McGraw-Hill Cos.
We are very close to a bottom, and the fourth quarter of last year and the first quarter of this year will probably be the most disappointing, McGraw said.
Michael Goodman, an economist at the University of Massachusetts' Donahue Institute, took issue with that view.
I don't really see accumulating evidence that we've hit the bottom just yet, Goodman said. The pace of the decline may slow in the future, but I think all the evidence is still clear that we can expect continued decline.
He said it would be some time before stimulus spending plans start to have a clear effect on the economy.
Goodman's view is borne out in Detroit, in a region that has been pounded economically by the troubles of the U.S. auto industry. The Michigan city has had to put the brakes on projects ranging from developing a riverfront residential area to new office space for companies committed to downtown Detroit, said John Carroll, a senior vice president of business development for the Detroit Regional Chamber of Commerce.
Lots of that is on hold, Carroll said.
CUTS IN JOBS, SPENDING AHEAD
According to the survey, 71 percent of the CEOs expect to cut their U.S. work forces over the next six months, and 66 percent expect to reduce capital spending. Lower sales are expected by 67 percent.
The survey was conducted between March 16 and March 27, a time when U.S. stocks were rallying, with the Dow Jones industrial average rising as much as 25 percent from its March 6 low. Stocks have since lost much of that momentum, with the major averages losing ground on Tuesday ahead of what is expected to be a season of weak quarterly earnings report from U.S. companies.
Businesses still see tough times ahead. Diversified U.S. manufacturer Emerson Electric Co on Tuesday cut its profit target for the year, and investors are awaiting an earnings report from Alcoa Inc later today that is expected to show a second consecutive quarterly loss for the U.S. aluminum producer.
Business Roundtable member companies together employ almost 10 million people and generate about $5 trillion in annual revenue.
(Additional reporting by John Poirier in Washington, editing by Dave Zimmerman, Brian Moss and John Wallace)