updated 10/5/2006 3:43:29 PM ET 2006-10-05T19:43:29

More top U.S. chief executive officers believe the economy is going to deteriorate over the next six months than expect improvement, according to a study of 70 top CEOs released on Thursday.

A joint study by the Business Council and the Conference Board found that 45.6 percent of top CEOs forecast economic conditions to get worse over the next six months, while 41.2 percent believe conditions will improve. That marks the first time in the survey’s two-year history that the largest segment of respondents expected conditions to deteriorate and is a sharp increase from the 16 percent of respondents in February who saw conditions worsening.

“Results ... show increased caution about the U.S. and global economies and concern about profit growth,” Kenneth Chenault, vice chairman of the group and chairman and CEO of American Express Co., wrote in a preface to the study.

The findings suggest the volatile energy prices, rising interest rates and cooling U.S. housing market of the past year are beginning to take a toll on business.

The survey found that 71.4 percent of CEOs expect the U.S. economy to grow at a rate of 2.1 percent to 3 percent next year, with 24.3 percent expecting growth of 2 percent or less.

“Two to three percent (GDP) growth is actually not only quite acceptable but maybe in the long run has a better probability of being sustained than something else,” said Clayton Jones, chairman, president and chief executive officer of cockpit electronics maker Rockwell Collins Inc.

Oil prices — which affect companies directly through the cost of energy to run factories as well as influencing consumer spending through gasoline prices — have fluctuated widely over the past year.

On Thursday, U.S. oil futures CLc1) bounced back from an eight-month intraday low of $57.45 per barrel after officials of the Organization of Petroleum Exporting Countries said they would cut output as soon as possible in the face of sliding prices. Oil futures hit a record high above $78 in July.

The Federal Open Market Committee this summer took a break from a campaign of 17 consecutive interest rate hikes that lifted the benchmark federal funds target rate to 5.25 percent and again in a meeting last month decided to hold rates steady, saying inflation risks should abate as economic growth slows.

The survey found CEOs were particularly cautious about prospects in their own industries, with only 14 percent of respondents expecting conditions in the sectors they compete in to improve over the next six months, down from the more than 40 percent that expected growth in their sectors in February.

In a sign they are preparing for a slowing economy, some 38 percent of CEOs surveyed said they expect cost cutting to be key to future profits and more than 80 percent said they expect the pace of new hiring to remain stable or to slow.

While volatile energy prices and rising interest rates have commonly been cited as headwinds to profit growth over the past year, the CEOs surveyed said they don’t see either rising much further. Fifty-three percent of respondents said they expect energy prices to move somewhat lower over the next six months, while three-quarters said they expect the Fed funds rate to remain between 5 percent and 5.5 percent over that time frame.

“What you’re seeing is a naturally self-correcting situation where energy prices and housing are performing as the air brakes on the economy,” said Steve Odland, chairman and chief executive officer of office supplies retailer Office Depot Inc. “That has put it into the right perspective. So I think the Fed can, I hope the Fed can, stop raising rates.”

The Business Council is a group of 200 top U.S. chief executive officers that counts among its members the top executives at companies including General Electric Co., American Express Co. and Johnson & Johnson. Some of its members were meeting Thursday in this suburb of Dallas.

Copyright 2012 Thomson Reuters. Click for restrictions.


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