VOL. 124 | NO. 68 | Wednesday, April 8, 2009
CEOs See More Layoffs; Decline in Spending, Sales
By TALI ARBEL | AP Business Writer
NEW YORK (AP) – In a sign of the deep pessimism gripping corporate America, an index tracking the outlook of chief executives of some of the country's biggest companies dropped to its lowest level since the survey began in 2002.
The Business Roundtable index of CEOs' six-month forecast fell to -5 in March from 16.5 in November.
An index reading of 50 or lower is consistent with economic contraction, while a reading of 50 or higher is consistent with expansion.
All the indicators declined broadly from the CEOs' forecast in November.
However, some small signs of hope have emerged since the survey was taken March 16-27, said Harold McGraw, chairman of the Business Roundtable and CEO of the McGraw-Hill Cos.
"This is our darkest hour," McGraw said on a conference call. "I do think we're going to start to see improvement from here."
In the survey, however, the CEOs were glum on capital spending, layoffs and sales.
The unemployment rate is already at 8.5 percent, the highest level in more than a quarter century, but 71 percent of those surveyed see more American job losses coming in the next six months.
Two-thirds or more of the chief executives also expected their companies' sales and capital spending to drop in the next six months.
The top executives see the value of the country's economic output of goods and services shrinking by 1.9 percent this year.
The government said the country's gross domestic product, the total value of all goods and services produced in the U.S., increased 1.1 percent in 2008 – but shrank at a 6.3 percent pace in the last three months of the year.
President Barack Obama's budget office has forecast a 1.2 percent decline in GDP this year.
"There is no doubt that the current crisis is placing great stress on workers and businesses," McGraw said, but efforts by governments worldwide to boost lending and fill the void in economic activity are reassuring the CEOs.
Among U.S. companies shedding jobs, industrial conglomerate 3M Co. said in March that it would chop its work force by 1.5 percent, or 1,200 jobs, as the recession cuts into demand for its products.
Oil company ConocoPhilips said last week that sagging commodities prices – the price of oil is down about $100 since summer, as the recession bites into demand for petroleum products – would hurt its first-quarter results.
The third-biggest U.S. oil company cut 1,300 jobs in January and has chopped its capital spending budget by 37 percent this year.
There may be an end in sight, however, McGraw said.
"We'll start to see the pace of decline slowing down, we could see possible growth in the fourth quarter," he said. "Retail sales are showing some strength, housing is beginning to form a bottom. The stimulus is also starting to take hold, and the G-20 stimulus also is an encouraging sign."
Last month, the Group of 20 industrial and developing economies promised $1.1 trillion in emergency loans to struggling countries through the International Monetary Fund and other multilateral organizations. They also said they would regulate hedge funds and other financial institutions.
The U.S. government passed a $787 billion stimulus package earlier this year, and European and Asian governments have also poured billions into their economies to try to minimize the blow of recession. Meanwhile, the Federal Reserve has initiated programs to spark lending and unspool tight consumer credit markets.
The commercial paper market, which had dried up almost completely last fall, leaving companies scrambling to finance day-to-day operations, has by now "changed materially," McGraw said. Commercial paper lending is stronger, and "we're starting to see new issuance of debt, a little pickup in (mergers and acquisitions) activity."
The Federal Reserve launched a commercial paper buying program in late October to help funnel money to corporations.
This year, there have been three massive consolidations in the pharmaceutical sector, while on Tuesday First Niagara Financial Group Inc. said it was buying $4.2 billion in deposits and 57 branches from a unit of PNC Financial Services Group Inc.
Over the weekend, London-based bank HSBC said it successfully completed a massive stock offering, raising about $18 billion.
However, even if markets take a turn for the better, an improvement in jobs is still a long ways off, McGraw said. The unemployment rate will likely bottom at 9 or 10 percent next year, according to economists' projections.
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