Explanation of the CEO Survey - important
caveatsThe survey reflects the current
expectations of the CEOs of roughly 100 major U.S. multinational
corporations who are members of the
Business
Roundtable organization. This is not necessarily a
representative sample of American CEO's in general, such as those in
other industries or smaller organizations. Note that sales growth
expectations may be global, while the other questions relate only to
U.S. job creation, capital spending, and US macroeconomic growth
assumptions.
Another key point is that this is a perceptions and
expectations survey, relative to the current situation of their own
business, rather than a survey of their opinions about the larger U.S.
economy. Do they expect increased sales over the next six months,
relative to where they are today? Do they expect to do more
capital spending, or employ more people, in the USA?
In that context, the survey does not attempt to
quantify the magnitude of such expectations. For example, do they
expect to do 5% more hiring, or 1%, or 10%? Any of these would
simply be an "increase", thus reflecting some degree of optimism about
hiring more employees without giving any indication of the degree of
certainty or optimism involved. The CEOs simply expect to hire
more employees, and the data reflects how many of the executives have
such optimistic expectations - no matter how cautious or exuberant those
expectations may be.
It is also worth noting that there is no reason to
believe that these CEO opinions are a reliable leading indicator of
macroeconomic performance. In short, are their opinions a leading
indicator, trailing indicator, or simply a barometer of current CEO
opinions with no predictive value? Since we don't have comparable
data through multiple business cycles, it is hard to conclude whether or
not the CEO expectations for the next 6 months at their own companies
are a reliable indicator of future macroeconomic performance of American
businesses, or whether their views are heavily biased by other factors,
such as the opinions of economists and other observers rather than just
the facts within their own companies.
For example, consider the difference between the 2008
Q3 and Q4 results. Although there were growing signs of an
economic recession and serious economic problems in the USA from mid to
late 2007, it wasn't until the financial market collapse in the fall of
2008 that the CEOs suddenly lowered their own expectations for the
performance of their companies. They had clearly been nervous
about the apparent decline in GDP growth, but their own expectations for
sales, capital spending, and job creation remained largely unchanged.
When the credit markets suddenly collapsed, all of their expectations
changed dramatically. They clearly didn't see this coming.
Similarly, at the end of the 2001 - 2003 recession,
they seem to have been expecting GDP growth before they were very
confident about their own growth in sales, capital spending, and
employment. In this context, their expectations for a recovery
from the current recession may well lag the actual recovery, but they
could just as easily be too optimistic already and miss a "double dip"
recession.
Finally, it needs to be kept in mind that the "higher"
metric is higher than the present state - which is a moving performance
baseline rather than a static reference point. For example, after
a really terrible economic collapse, many CEOs may think that their
sales have hit bottom, and will go up again. Even if 100% of them
expect an increase from that extremely low level of sales, however, that
doesn't mean that they are expecting to exceed prior performance levels
again anytime soon. Once again, the survey doesn't measure the
magnitude of the expected changes, so a minor blip up in sales
expectations by many CEOs would look the same as many companies actually
achieving rapid sales growth.
