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Business leaders expect economic strength

Chief executives expect the U.S. economy to show strength in 2006 despite rising health-care and energy costs, according to a quarterly survey released by the Business Roundtable on Wednesday.
/ Source: Reuters

Chief executives expect the U.S. economy to show strength in 2006, as strong consumer and corporate spending and increased productivity offset rising health-care and energy costs, according to a quarterly survey released by the Business Roundtable Wednesday.

The survey of Roundtable members — CEOs from large U.S. companies — found the overall CEO Economic Outlook Index increased to 101.4 from 88.2 in September. Any number higher than 50 signifies economic expansion.

It was the second-highest level in the survey’s three-year history, trailing only the 104.4 recorded in the first quarter of 2005.

CEOs expect overall U.S. economic growth of 3.3 percent in 2006, compared with a projected 3.4 percent to 3.5 percent this year.

“This is a healthy rate of growth. So 3.3 percent into 2006 ... represents a continuing strong economy,” Hank McKinnell, chairman of Business Roundtable and CEO of drugmaker Pfizer Inc., said on a conference call.

“The survey suggests that CEO confidence has rebounded despite persistently high oil prices, devastating natural catastrophes worldwide and a continuing volatile geopolitical environment,” he added.

The economy is being driven by strong consumer spending, as well as strong capital spending by companies and continued productivity gains, McKinnell said.

“This unusually strong growth in productivity has underpinned the increase in profitability at U.S. firms and has helped to finance the increased capital spending,” he said.

McKinnell also said a successful parliamentary election in Iraq this week would “buoy everybody’s spirits here.” That would possibly result in reduced spending in that country by the United States, leading to a smaller U.S. deficit.

The survey also found that 87 percent of CEOs expect their sales to increase over the next six months, up from 74 percent in the last survey conducted after Hurricane Katrina hit the Gulf Coast region.

It found 56 percent expect to raise capital spending, up from 40 percent in September, according to the survey. Another 40 percent see no change.

It was the second-highest level ever for those who expect an increase, trailing the 60 percent rate in March, McKinnell said.

Forty percent of employers expect to increase employment, up from 33 percent three months earlier, the survey said. Another 41 percent expect to make no change in employment.

The employment predictions were the strongest recorded this year and near the all-time high in the last two quarters of 2004, McKinnell said.

For the third year in a row, CEOs cited health-care costs (42 percent) as the top cost pressure, according to the survey. Energy costs (27 percent), cited as the third-greatest pressure in 2004, passed litigation costs as the No. 2 area of cost pressure for large U.S. companies.

Litigation costs (9 percent), materials and pension costs (8 percent each), labor (4 percent) also were cited.

The survey was completed by 117 of 160 member companies.