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Vistage: CEOs remain confident

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Vistage:  CEOs remain confident

Hiring seen as a top concern.

The latest survey by CEO coaching firm Vistage found that CEOs continued to feel confident about today’s economy, as the Vistage CEO Confidence Index was virtually unchanged from the levels recorded in the prior two quarters. The Index was 101.0 in the 2nd quarter 2014 survey, nearly identical with the 101.3 in the 1st quarter and the 101.5 in the 4th quarter of 2013.

This was the best three-quarter performance since 2005. The constancy of economic optimism is all the more surprising given the drop in GDP during the 1st quarter, indicating that CEOs discounted last quarter’s decline as an aberration due to the harsh winter.

"While legislative proposals regarding minimum wages and overtime pay are top concerns, the most pressing concern of firms today have more to do with hiring new employees to expand their business."

Nonetheless, the extent of the falloff in GDP and the delay in the anticipated strong spring rebound is likely to have constrained CEOs from voicing more optimistic expectations in the recent survey. While legislative proposals regarding minimum wages and overtime pay are top concerns, the most pressing concern of firms today have more to do with hiring new employees to expand their business. Rather than sensing a good deal of labor market slack due to high levels of long-term unemployed and labor force dropouts, nearly one-third of all CEOs mentioned staffing needs as the most critical issue now facing their firm. Concerns about staffing were mentioned twice as frequently as economic uncertainty, which was the 2nd most critical issue reported by firms. The required wage increases required to attract new hires raise the potential for renewed inflation, affecting both facets of CEOs’ most critical concerns.

Economy Maintains Strength. Half of firms reported that the economy had recently improved, just above the 48% who reported gains last quarter and the 49% in last year’s 2nd quarter. When asked to assess the year ahead prospects for the economy, 38% expected an improved pace of growth, just ahead of the 37% recorded last quarter and the 36% in last year’s 2nd quarter survey. Just 10% expected the rate of economic growth to slow in the year ahead. Overall, the data provide convincing evidence that the 1st quarter drop in GDP was largely discounted, with firms maintaining a positive outlook for the year ahead.

Robust Hiring Plans. Among all firms in the 2nd quarter survey, 57% planned on expanding their payrolls, just below last quarter’s 58%, which was the highest level since the start of 2007. These robust hiring plans were confronted by significant challenges to find and hire qualified staff, more consistent with a tight than a slack labor market. Among all CEOs, 30% mentioned hiring new staff was the top business issue that they now face, well above the 16% who mention the deleterious impact of economic uncertainty. CEOs’ views of labor market conditions make it more likely that wages will begin to rise in the year ahead. Overall, rising wages and health benefits are likely to be passed along to their customers. Indeed, 43% of CEOs in the survey anticipated that the prices of their products or services would increase in the year ahead.

Robust Investment Plans. Planned increases in investments in new plant and equipment were reported by 46% in the 2nd quarter 2014 survey, barely below last quarter’s 47%, which was the highest level in four years. Reductions in investments during the year ahead were expected by just 9% of all firms. Planned investments were at the highest level in the 1st half of 2014 than any time since the start of 2011.

Strong Revenue Growth Expected. Revenue gains were expected by 73% of all CEOs in the 2nd quarter survey, between last quarter’s 74% and last year’s 68%. Just 6% anticipated declines in their revenues during the year ahead. The strong expected growth in revenues makes staffing needs critical.

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Majority Expect Rising Profits. Among all CEOs, 56% anticipated increased profits in the 2nd quarter, between last quarter’s 57% and above last year’s 52%. The stability of profit expectation at the highest levels recorded in the past two years will enable the implementation of robust hiring and investment plans.


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