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The confidence roller coaster continues

March 4, 2013
It should come as no surprise that U.S. business executives remain at once optimistic AND pessimistic about their prospects for the rest of 2013 – a mixture that’s not helping boost private sector confidence.
It should come as no surprise that U.S. business executives remain at once optimistic AND pessimistic about their prospects for the rest of 2013 – a mixture that’s not helping boost private sector confidence.

Indeed, that decidedly human emotion plays a big role in future investment plans, according to Andrew Liveris (at right), chairman and CEO of The Dow Chemical Company and chairman of The Business Council.

And as any trucker knows, greater investment by businesses spawns higher levels of freight; volumes sorely needed to help carriers generate monies to pay higher driver wages, higher equipment costs, and cope with high fuel prices.

"Confidence is the major arbiter of corporate investment decisions, and is required for executives to make the sound judgments that will be required to stimulate growth around the world,” noted Liveris as part of commentary regarding the results of a recent survey. "Corporations and governments around the world must work together to boost confidence.”

The reason “confidence” is suddenly an issue is pretty simple, according to the Business Council Survey of CEOs conducted in collaboration with the Conference Board.

For example, that survey found top chief executives are more optimistic about prospects for the global economy than they are for the U.S. economy, with nearly three quarters of those CEOs polled expecting global growth in 2013 will keep pace with 2012, while almost 60% expect growth to quicken in 2014.

Yet despite the belief that the global economy will grow in the next two years, confidence is an issue, with 64% of respondents in the group’s poll saying that they were "very" or "somewhat" confident that growth would return to previous high rates – a decline of 21 percentage points from the last survey in October.

Interestingly, the chief executives in this survey are most optimistic about the prospect of improving conditions in China than any other economy, with 57% of respondents expecting an improvement of business conditions there, compared to 30% in the previous survey and 36% optimistic about improving conditions globally.

Consistent with results from Business Council surveys for nearly three years, the most recent survey found that the economy cannot move forward without improving confidence, noted Richard Davis (at left), the group’s vice chairman and CEO of U.S. Bancorp.

"Sentiment has improved from the lows of last October, but members remain cautious," he said. "Budget and deficit policies continue to be the top policy concerns, followed closely by health care, education, and energy."

Not surprisingly, continued uncertainty and inaction from government leaders continues to weigh on confidence and delay investment commitments, according to the group’s poll, with only 14.5% of those chief executives surveyed believing that the fiscal cliff deal did anything to solve long-term problems.

Another 80% said they don’t believe that the agreement was a meaningful step to resolving the deficit issue, while and 84% believe it relied too much on taxes and too little on spending reform.

One good piece of news comes from the employment front, as the survey discerned that Business Council members appear to be increasingly willing to hire workers if activity levels can improve on a sustained basis to justify these additions.

About 40% of respondents said they would hire new workers if business activity increased more than expected in the next six months, compared to 35% in October, with 86% noting that they would hire new workers if business activity levels increase over the next 12 months.

Still, those optimistic feelings are being tempered by growing uncertainty in other areas. For example, a survey conducted by the Association for Financial Professionals (AFP) in collaboration with the Global Risk Center of the Oliver Wyman Group.

More than half of 547 CFOs, corporate treasurers and other senior finance executives polled in the 2013 AFP Risk Management Surveysaid that their organizations are exposed to more earnings uncertainty today than five years ago (58%), with more than half expect the forecasting of critical variables to become even more difficult in the next three years.

Among these critical variables, the largest share of survey respondents (30%) cited macro-economic factors – such as gross domestic product (GDP) growth – as the most influential ones driving earnings uncertainty, followed by financial factors, external conditions, and commodities.

Indeed, more than half of those polled by AFP said it is more difficult to forecast risk today than it was five years ago – with the risks that are hardest to forecast are having the greatest impact on earnings and will continue to influence financial results in the future.

Those polled by AFP added that they predict the risks with the biggest impact are: customer/satisfaction retention (cited by 44% of respondents); regulation (37%); GDP growth (35%); political risk (28%), interest rates (21%) and credit risk (21%).

Executives from companies with revenues under $1 billion saw customer behavior as having the biggest impact, whereas those from larger companies saw GDP growth as having the biggest impact, pointed out Alex Wittenberg, a partner at Oliver Wyman and head of the firm's Global Risk Center.

"Developing a sustainable competitive advantage in an increasingly uncertain environment is the most important issue facing business today," he said. "Those companies that understand how risks inherent in their inputs, outputs, and operations will explicitly impact their financial results are more likely to seize on new opportunities and lead the pack."

It’ll be interesting to see how many companies seek for such “competitive advantages” in the freight world. 

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