U.S. chief executives took a slightly less grim view of the economy in the second quarter, but still plan to cut jobs and capital spending, according to a Business Roundtable survey released on Tuesday.
The quarterly CEO Economic Outlook Index rebounded to 18.5 in the second quarter from a record low of negative 5 in the first quarter. But it was still the third-lowest reading in the survey's six-year history. A reading below 50 means CEOs expect economic contraction rather than growth.
What we basically see is more visibility, in that we don't see us in continued free fall, said Ivan Seidenberg, chairman and CEO of telephone company Verizon Communications Inc
Investors also appear to believe the worst of the downturn is behind them. The broad Standard & Poor's 500 index <.SPX> has risen roughly 34 percent from the 12-year low it hit in March.
The main question now facing businesses and investors is when the U.S. economy will begin to recover from a recession it entered in December 2007 and how significant that recovery will be. Data released on Tuesday showed home sales rose at a slower-than-expected pace last month, a key metric given that slumping house prices have taken a toll on consumer spending.
Roundtable Member CEOs expect real U.S. gross domestic product to decline 2.1 percent in 2009, a sharper contraction than the 1.9 percent forecast in the first quarter.
STILL CUTTING JOBS
Corporate chiefs still plan to cut costs for the next six months, with 51 percent intending to reduce capital spending and 49 percent expecting to cut U.S. jobs. Forty-six percent anticipate a decline in sales.
Those plans indicated a less grim outlook than in April, when two-thirds of CEOs were planning to cut jobs and capital spending.
The continued job cutting will slow the pace of any recovery by increasing the unease of consumers, who account for the lion's share of U.S. economic activity, noted Boston University finance professor Israel Shaked.
As long as there is this uncertainty, we will continue to be in a very, very depressed situation, Shaked said. Many CEOs haven't overcome this year of, 'Let's be ready and lay off people because we have to be lean and mean.'
Business Roundtable member companies, who were surveyed June 1-12, together employ almost 10 million people and generate $5 trillion in annual revenue.
Chief financial officers also became a little less wary about the economy during the quarter.
The Financial Executives International/Baruch College CFO Optimism Index for the U.S. economy showed its first improvement in more than two years. Still, CFOs warned recovery may be a ways off, with 90 percent anticipating a rebound by the first half of 2011.
That survey polled 266 CFOs from June 1-8.
(Reporting by Scott Malone; Editing by John Wallace and Andre Grenon)