CEOs Offer Bleak View on Economy
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By Tim Ahmann
WASHINGTON (Reuters) - Executives at top U.S. companies expect a weaker economic performance this year than last, with many anticipating a need to reduce payrolls over the next six months, a survey released on Thursday showed
A survey by the Business Roundtable, whose member companies have a combined work force of 10 million and $3.7 trillion in revenues, said U.S. executives expect U.S. gross domestic product to advance just 2.2 percent this year, a bit less than the sluggish 2.4 percent gain registered in 2002.
In addition, only 9 percent expect to hire new workers, while 45 percent expect to let workers go.
"What we're seeing is a continuing trend of a weakening economy," Business Roundtable Chairman John Dillon, chairman and CEO at International Paper (NYSE:IP - news), told reporters on a conference call. "This economy continues to operate well below its potential and continues to be of serious concern to us."
"We're teetering someplace right on the brink of negative numbers," Dillon said.
In a survey released in November, 71 percent of the responding companies looked forward to higher sales this year, even though 60 percent were anticipating employment to fall.
The latest survey showed executives slightly ratcheting back their forecasts for economic growth, which the November poll had put at 2.4 percent.
It also showed companies remain reluctant to increase capital spending.
Twenty-seven percent said they expected to reduce their investment spending over the next six months, while only 18 percent planned to raise it.
A collapse in business spending on plants and equipment led the economy into recession in early 2001. Economists say a pickup in business investment is needed to ensure a broad-based, sustainable recovery.
Dillon cautioned, however, that U.S. businesses are still operating with ample capacity, suggesting capital spending was unlikely to rise without a pickup in consumer demand.
Executives responding to the survey identified consumer uncertainty stemming from the war in Iraq (news - web sites) and the related worry of terror attacks as the biggest economic challenge.
Asked if the economy might pick up now that the U.S.-led war in Iraq appeared to be entering its final stages, Dillon said that while some rebuilding of inventories might be expected, a more-fundamental strengthening may be lacking.
"The fundamentals we are talking about here are largely not war related (and) therefore we continue to be very concerned," Dillon said.
For this reason, he said, passage of the President Bush (news - web sites)'s tax cut plan was important, adding that the business group would press hard for its central feature -- the elimination of taxes on corporate dividends.
Bush's $726 billion tax cut plan has come under fire most severely in the Senate and less so in the House of Representatives and it appears likely to be whittled down. It is unclear what final figure the two chambers of Congress will eventually agree to.
Forty-four percent of the companies said rising health-care costs were the greatest cost pressure they were facing. That was followed by litigation costs, which were cited by 25 percent of respondents.
The Business Roundtable said 120 of its 150 member companies responded to the survey.
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