CEOs more optimistic on outlook

Chief executives of large US multinational companies are more optimistic about the business outlook over the next six months.
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Published on Feb 17, 2006 05:44 PM IST
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None | ByReuters, Boca Raton

Chief executives of large US multinational companies are more optimistic about the business outlook over the next six months, and more corporate leaders expect to increase hiring this year, according to a survey released on Thursday.

CEOs also expect better conditions in Europe and Asia, widely approve of Federal Reserve interest rate policy, and identify health-care costs as the main domestic policy challenge, the survey by the Business Council and The Conference Board found.

"The economy is strong," said Council Chairman Jeffrey Immelt, chief executive of General Electric Co.

"Europe seems better, China continues to be strong. People shrugged off the post-Katrina oil shocks," he said on CNBC television, which is part of GE's media portfolio. "Things seem pretty good."

The Council, a non-profit group of current and former chief executives, reported that 40 per cent of the 82 respondents to the survey expect conditions in their industries to improve in the coming six months. In an October survey, just 27 per cent expected improvement.

Among the factors supporting optimism are a pick-up in the US manufacturing sector, low inflation, steady economic growth, and an expected retreat in energy prices, the survey found.

"We are seeing a very resilient economy and one that seems to be growing in every part of the world," said Sidney Taurel, who heads drugmaker Eli Lilly and Co. "Just about every region is growing and it's very encouraging," he told Reuters on the sidelines of the Business Council meeting in Florida.

Steve Odland, who leads office supplies retailer Office Depot Inc, said relatively low rates, easy access to capital, and a climate of low regulation were all conducive to doing business.

"Overall, we see a lot of strength in the economy. It's the breadth across sectors that's encouraging as well," Odland said.

Caterpillar Inc's Jim Owens said, from his vantage point, the economy is enjoying an unprecedented good time, with low unemployment, interest rates and inflation, but high levels of wealth.

"The interesting thing about the survey is that people had stronger opinions than they had last time around. I don't think as a group they have a great track record of forecasting," said Owens, who leads the world's biggest maker of heavy machinery.

"There were more pessimists and more optimists at the expense of the middle. I'm on the optimistic end of that spectrum," he said.

"We came into the year with one of the strongest order boards we've seen and we're coming off a period of very rapid growth and looking for that to sustain itself this year," Owens added.

The manufacturing, consumer goods, financial services and media sectors recorded the widest divergence between optimists and pessimists. More than one in five corporate leaders -- 21 per cent -- expect worse business conditions, with 25 per cent of manufacturing CEOs sharing that view.

The proportion of CEOs saying they expect to take on more workers doubled from October to 26 per cent. More respondents also expect pay levels to accelerate, and a majority expects the unemployment rate to stay below 4.9 per cent this year.

"Unemployment is incredibly low, the lowest I've seen in a long time," said JW Marriott Jr, chairman and chief executive of hotel operator Marriott International Inc.

Marriott, whose business closely tracks US economic growth, said the US consumer was another factor supporting his optimism about the economy.

But while more CEOs are optimistic about the business climate, their outlook for profit and investment was little changed. A majority says market demand remains a primary profit driver, but price hikes are taking on a bigger role, the survey found.

Health-care costs retained the top spot on a list of domestic policy concerns, with 86 percent of CEOs calling them very important or the most important issue. Most predict benefit costs will rise further over the next year, and 42 per cent called health-care costs a "major obstacle" to hiring.

Among global policy issues, CEOs identified energy supply as the most important. Fewer than half said intellectual property rights, immigration, or global warming were very important issues.

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