Top CEOs more optimistic on economy but don’t plan more hiring

WASHINGTON -- Despite higher taxes and looming federal budget cuts, top U.S. chief executives were more optimistic about the economy in the first three months of this year than they were at the end of 2012.

The CEOs surveyed by the Business Roundtable expected to see increased sales and to spend more on capital investment, over the next six months, according to results released Wednesday.

But their expectations for hiring new employees remained flat compared to the final three months of last year. That was because of slow economic growth and lingering concerns about Washington’s inability to deal with fiscal issues in a comprehensive way, said Boeing Co. Chief Executive Jim McNerney, chairman of the Business Roundtable.

“We keep lurching from one crisis to another here in D.C., which does put a little bit of a damper on investment, particularly long-term investment,” McNerney told reporters in a conference call. “We are discouraged that it’s not moving faster.”

The group’s quarterly CEO Economic Outlook Survey rose significantly to 81 in the first quarter of the year from 65.6 in the fourth quarter of 2012, which was the lowest reading in about three years.

The downturn in expectations began last summer and probably reflected concerns about the “fiscal cliff,” the combination of large tax increases and federal spending cuts that economists warned would cause a recession this year.

A last-minute agreement averted most of the tax increases and delayed the budget cuts, and McNerney said the deal may have boosted confidence in executive suites.

“There might have been a sigh of relief,” he said. But noting that the delayed spending cuts started to kick in on March1, McNerney added, “It’s kind of like the trip to the gallows was pushed out two days.”

Washington policymakers still must deal with the nation’s soaring debt, and the continued partisan stalemate makes CEOs hesitant to invest more money, said John Engler, the group’s president.

“The more major issues get resolved ... the more it begets confidence and investment,” he said.

Still, expectations for higher sales rose significantly in the first quarter, boosting projections for business investment.

The percentage of chief executives who expected sales to increase in the next six months rose to 72% in the first quarter from 58% at the end of last year. Those expecting more capital spending in the next six months was up as well, to 38% in the first quarter from 30% in the previous quarter.

But expectations for hiring remained flat, with 29% of CEOs saying they planned to increase staffing in the next six months. That was the same percentage as in the fourth quarter.

“While this is a long, protracted and very slow recovery, we all have hopes for our businesses that exceeded the growth rate we’ve got right now,” McNerney said.

But he added that investment was not at the level “you would find normally in this stage of a recovery … and it’s not enough to generate employment gains.”

The index reading of 81 in the first quarter was below the 96.9 level of a year ago, but was close to the average of 79.2 over the 11 years of the survey.

The index can range from negative 50 to 150, and a reading above 50 indicates a growing economy. The Business Roundtable represents chief executives of major U.S. companies, and 144 of them were surveyed for the latest report.

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