US chief executives' view of the economy deteriorated sharply in the third quarter and is now as bleak as it was in the immediate aftermath of the last recession, according to a survey released by the Business Roundtable on Wednesday. CEOs have become more likely to cut jobs than add them in the United States over the next six months, and also said they were less likely to raise their capital spending, as companies hold onto cash in the face of economic uncertainty.
The group's CEO Economic Outlook Index tumbled to 66 in the third quarter from 89.1 in the second, in the third-sharpest drop recorded in the survey's decade-long history. The measure of CEO confidence fell to its lowest point since the third quarter of 2009, when the United States had just emerged from its worst recession in 80 years. But the gauge remained above the 50 mark separating growth from decline.
CEOs are particularly worried about the "fiscal cliff," some $500 billion in federal spending reductions and expiring tax cuts due to take effect if Congress and the White House are unable to find a compromise on deficit reduction by December 31. "The past quarter has seen continuing concerns about uncertainty surrounding the fiscal cliff, the continued inaction in Washington that is holding up much-needed tax, fiscal, entitlement and regulatory reforms that would provide certainty for businesses," said James McNerney, CEO of Boeing Co, who also serves as chairman of the Roundtable.
Falling demand in Europe and Asia were also taking a toll on companies' prospects, McNerney said. Thirty-four percent of the 138 US CEOs surveyed expect to cut jobs in the United States over the next six months, up from 20 percent a quarter ago, while 30 percent plan to raise capital spending, down from 43 percent. Fifty-eight percent expect their sales to rise over that time period, down from the previous survey's 75 percent.
CEOs of Roundtable companies, which collectively generate $7.3 trillion in annual revenue and employ some 16 million people, also lowered their forecasts for US economic growth. They now expect real gross domestic product to rise 1.9 percent in 2012, down from a June forecast of 2.1 percent growth. The report came a day after the US Conference Board showed US consumer confidence had rebounded to a seven-year high in September. But it mirrored other recent measures of corporate activity that showed manufacturing has contracted for the last three months and new claims for jobless benefits, which have held near two-month highs.
Another survey, by Deloitte, found that chief financial officers' view of business prospects had also darkened in the quarter. It found CFOs had lowered their expectations for hiring, capital spending and earnings growth in the quarter. Sentiment among small businesses has also been hurting as owners fret about weak consumer demand. Still, other pockets of the economy have seen resilience, including the vast services sector which expanded last month as employment picked up.
The findings come less than two months ahead of the US presidential election, in which the weak economy and stubbornly high unemployment are shaping up to be key elements in voters' choice between incumbent Democratic President Barack Obama and Republican challenger Mitt Romney. The Romney campaign was quick to call out the results as a sign that Obama's economic policies were not working.
"Business leaders have the gloomiest outlook in three years and the President's failed economic policies of higher taxes and more regulations will only make things worse," spokesman Ryan Williams said in a statement. The Obama campaign did not immediately respond to a request for comment. Businesses hope that politicians in Washington will be more focused on solving economic problems after the election, when they will be under less pressure to take harder-line positions to satisfy donors and activists.
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