CEOs See Economy Gaining Steam
By REUTERS
Filed at 10:35 p.m. ET
WHITE SULPHUR SPRINGS, W.Va (Reuters) - Most U.S. corporate chieftains see the economy and their businesses on a strong footing next year though they forecast a slow improvement in the employment picture, according to a survey released on Wednesday.
More than half of the chief executive officers quizzed by the Business Council, 55 percent, thought the economy would grow more than 3 percent next year with another 40 percent expecting expansion of 1.6 percent to 3 percent.
Executives also offered an upbeat outlook for their own businesses, with about two-thirds of those surveyed predicting their profit margins would grow in 2004 but their ability to raise prices would still be limited.
``Overall I'd say there is an expectation of a good but not super economy coming in this last quarter and in 2004 with expectations that productivity will continue and that will be a significant driver of profits for these companies,'' said Fannie Mae (FNM.N) CEO Franklin Raines who directed the survey.
The U.S. economy has been picking up steam in recent months, growing at a 3.3 percent annual rate in the second quarter. Private economists have predicted that the economy may expand as much as 3.9 percent next year.
But unemployment levels have remained stagnant at 6.1 percent even with 57,000 new non-farm jobs created last month. About 2.6 million jobs have been lost since 2001 and the CEOs did not have particularly good news for those out of work.
They forecast the unemployment rate would hover around 5.8 percent to 6.1 percent at the end of 2003 and fall to 5.1 percent to 5.8 percent next year.
And more than half of CEOs expect that the Fed will raise short-term interest rates next year but only modestly, according to the survey.
The U.S. Federal Reserve has kept short-term interest rates at 45-year lows in hopes that the economy will surge ahead and policymakers have indicated they have no intention of raising rates any time soon.
Executives ranging from General Electric Co. (GE.N) to Sara Lee Corp. (SLE.N) were convening at the posh Greenbrier golf and spa resort in the Allegheny mountains of West Virginia to chew over the latest U.S. outlook, corporate governance and other issues confronting their companies.
The Business Council, made up of about 125 CEOs from a variety of businesses, was established during the Great Depression to advise the government on the economy and social issues.
EMPLOYEE OUTLOOK MURKY
While spending on such items as research and development has increased substantially in recent quarters, U.S. businesses are still taking a tepid approach to opening the purse strings again on such items as inventory or work force expansion.
Companies' cost-cutting measures, such as axing jobs, have been the main force helping expand profit margins in recent quarters. But nearly two-thirds of the executives surveyed now predict they will see sales growth next year as consumer spending continues strong.
One statistic Raines noted that was surprising was almost two-thirds of the CEOs surveyed said they expected job growth at their companies to be stable, and only 14 percent increasing hiring despite their expectations for a better economy.
``It does raise the conundrum of how all those things happen at once,'' said Raines.
Inventories are also largely expected to remain stable next year, with 21 percent of those surveyed expecting a modest decline, according to the survey.
Three-quarters of the CEOs forecast inflation would be between 1.1 percent and 2 percent in 2004, while 17 percent expected inflation could reach as high as 3 percent.
Another area of particular concern for executives was the federal budget deficit, which has reached some $400 billion and was expected to go higher, which could crowd out private investment spending or push up interest rates.
Raines also warned that the economy cannot continue to rely on American consumers as the economy's driver.
``The consumer, even though they are the biggest part of this economy, can't continue to lead the recovery.''
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