U.S. chief executive officers' view of the economy darkened in the third quarter, breaking a five-quarter streak of improvement and turning corporate America more cautious on hiring.
The number of CEOs who expect their companies' sales and U.S. headcount to rise over the next six months declined in September, a Business Roundtable survey released Tuesday found. More bosses expect to boost their capital spending, however, reflecting many companies' cash-rich balance sheets.
"This is and will continue to be somewhat of a long and uneven recovery. We're not seeing a lot of major momentum develop here," said Ivan Seidenberg, CEO of Verizon Communications Inc, who also serves as chairman of the Roundtable. "Until we see aggregate demand start to materialize, hiring will continue to be on somewhat of a slower pace."
The Business Roundtable's CEO Economic Outlook Index declined to 86 in September from 94.6 in June, but remained well above the 50 mark, which separates forecasts of growth from expectations of decline. The CEOs' view is still markedly improved from early 2009, when the index stood at a record low of negative 5.
The CEOs' forecast of 2010 economic growth dropped sharply to 1.9 percent from a prediction of 2.7 percent in June.
Thirty-one percent of CEOs expected to add jobs in the United States over the next six months, down from 39 percent who expected to do so in June. They also expressed less optimism on sales growth, with 66 percent expecting increases over the next six months, down from 79 percent in June.
Stubbornly high unemployment is the bane of the current economic recovery. Almost one in ten Americans who want to work are currently without jobs, while some of those who are employed worry that their jobs could be vulnerable if the economy takes another leg down. That has hurt consumer confidence and weighed consumer spending, which accounts for the lion's share of U.S. economic activity.
A key report Tuesday showed the U.S. consumer confidence in September fell to its lowest level since February.
Investors will get a more in-depth reading of CEO confidence over the next month, as a slew of U.S. corporate heavyweights including Alcoa Inc, JPMorgan Chase and Co and General Electric Co report quarterly results.
Many top U.S. companies are sitting on extra-large cash reserves they amassed during the credit crunch, when some sources of short-term financing that corporate America had come to rely on had dried up.
CEOs' plans to spend more on capital equipment is a sign of confidence, Seidenberg told reporters.
"Business fundamentals at the micro level are reasonably strong," Seidenberg said.
With the economy now technically out of recession, boards are looking redeploy that capital. Beyond boosting capital budgets, corporate takeovers are back with a vengeance. Just this week consumer products maker Unilever agreed to buy hair and skin care products maker Alberto Culver and No. 1 U.S. low-cost carrier Southwest Airlines Co inked a deal for smaller rival AirTran Holdings Inc.
Business Roundtable member companies, who were surveyed between Sept. 1 and 21, collectively employ 12 million people and generate close to $6 trillion in annual revenue.