More CEOs Plan to Lift Spending, Study Says

What “soft patch”?

The nation’s leading chief executives plan to boost hiring and capital spending over the next six months, a resolute vote of confidence in a continuing economic recovery, according to a survey released Wednesday.

The Business Roundtable said plans for hiring and capital spending increases were the most optimistic since it launched its quarterly survey of large-company CEOs in 2002.

Such corner-office confidence comes despite a summer of economic doldrums, shown by slowing economic growth and disappointing job creation. Many economists blame the slump -- which Federal Reserve Chairman Alan Greenspan labeled a soft patch -- on such factors as high oil prices, sluggish consumer spending and the fading effect of Bush administration tax cuts.

But “the fundamentals are still solid and CEOs are optimistic that the economy will continue to grow,” said Henry A. McKinnell, chief executive of drug maker Pfizer Inc. and chairman of the Washington-based Business Roundtable, which represents bosses of 150 of the nation’s largest companies.

Greenspan and many economists agree with the CEOs, expecting a rebound in growth and job creation the remainder of this year.

“Business owners are becoming more optimistic,” said Keitaro Matsuda, senior economist at Union Bank of California, noting strong loan demand from the bank’s mostly mid-sized business customers.

Experts note that most of today’s employment growth comes from small and medium-sized businesses, not the behemoths represented by the Business Roundtable.

The next major test of whether the top CEOs are putting their hiring where their mouths are will come Friday, when the Labor Department releases August’s job and unemployment figures.

The consensus average forecast of economists calls for a net gain of 150,000 nonfarm payroll jobs, far better than July’s puny 32,000 increase. But economists’ forecasts have been far too optimistic in recent months.

According to the latest Business Roundtable survey, completed in mid-August by 118 of its CEO members, 40% of respondents expect their companies to add jobs in the next six months, up from 38% in June and 33% in March. Only 12% expected their payrolls to decline, versus 19% in June and 22% in March.

The survey also found that 49% expected to boost capital spending in the next six months, up from 44% in June and 43% in March. Only 7% plan to cut spending, unchanged from the two previous polls.

In another economic report released Wednesday, a survey of manufacturing activity rose in August for the 15th consecutive month, but at a slower rate than in July.

The Institute for Supply Management’s index for manufacturing activity stood at 59 in August, 3 points below the 62 recorded in July and just below what analysts were expecting. Any reading above 50 signals expansion in the manufacturing sector.

Also on Wednesday, the Commerce Department reported that construction spending rebounded in July to a seasonally adjusted annual rate of $997.2 billion, an all-time high and 0.4% higher than in June.

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Higher optimism

Chief executives’ outlook on employment appears more optimistic now than it was at the end of last year.

Survey: How do you expect your company’s U.S. employment to change in the next six months?

Higher employment

Sept. 2004: 40%

Dec. 2003: 25%

Equal employment

Sept. 2004: 48%

Dec. 2003: 50%

Lower employment

Sept. 2004: 12%

Dec. 2003: 25%

Source: Business Roundtable survey of 118 CEOs