Nearly Half of CEOs Pledged Their Personal Funds to Survive Economic Downturn
Small business CEOs expressed a remarkable resurgence of optimism both in the overall economy and for their own companies. The Vistage Confidence Index jumped to 106.3 in the 4th Quarter of 2010, after reporting 95.1 in the 3rd quarter, 94.4 in the 2nd quarter and 93.7 in the 1st quarter of this year.
Vistage works closely with an economic forecasting firm Ecotrends, owned by Alan and Brian Beaulieu who was in Bend early last year as the keynote speaker for EDCO’s annual luncheon. “The Beaulieu brothers have had an 95 percent accuracy in their forecasts over the past 25 years,” explained Bruce M. Juhola of Bend, chair of Vistage International in Bend.
“They called the recession a year before other economists and advised Vistage companies to take necessary steps to build cash. They also called the recovery well before other economists and advised Vistage companies to make capital investments and acquisitions while valuations were very low. Those Vistage companies who followed their advice have thrived as we come out of the recession. Several Central Oregon members have taken advantage of their advice and are growing rapidly.”
The Beaulieu brothers forecast mild growth in 2012 and a strong recovery in 2012. They have identified those sectors that will be especially strong. Construction is not one of the strong sectors. They predict that it will be at least a year before construction recovers.
Of the 1,729 respondents in the Q4 Vistage CEO Confidence Index, 77 percent expect increased revenues and 63 percent foresee higher profits in their own companies. Fifty-four percent expect to hire more employees in the coming year, which is the first time in three years that the majority of CEOs planned to expand the number of jobs.
While CEO confidence had been rising incrementally for seven consecutive quarters, the fourth quarter surge was due in large part to the reduction of economic and political uncertainties following the mid-term elections and a belief that these CEOs’ companies are well positioned for the future.
According to Vistage International Chair of the Board and CEO Rafael Pastor in San Diego, the Q4 results reflect the commitment and perseverance of our nation’s small business CEOs. “Nearly half the CEOs surveyed pledged their personal assets to keep their companies running, their people employed, and our economy from collapsing. They are the unsung heroes of our economic recovery and the brighter days ahead,” Pastor said.
The nationwide survey was conducted from December 14–24, 2010. University of Michigan’s Dr. Richard Curtin, who has directed the Vistage CEO Confidence Index Survey since its inception in 2003, provides the following additional analysis of the results:
Recovery Expected to Accelerate. The turnaround in confidence has been significant. At the depths of the recession in late 2008, 97 percent of all CEOs judged economic conditions were in decline; in late 2010, just 7 percent reported continued declines. When asked about future prospects for the economy, 58 percent in the 4th quarter 2010 survey expected improvement during the year ahead compared with just 5 percent who expected any further declines. This was the most favorable outlook for economic growth since the start of 2004.
More Jobs Creation Ahead. The majority of firms in the 4th quarter survey (54 percent) planned on adding employees to handle increased sales. This was the first time the majority planned to expand the number of jobs in three years. Just one-in-twenty firms expected to trim their workforce in 2011. While there were some firms that planned to hold back on hiring permanent employees due to uncertainties about the overall economic outlook and future demand, the majority did not expect to hire temporary employees in 2011.
Revenues Expected to Increase. Revenue growth was expected by 77 percent of all firms in the 4th quarter survey, up from 59 percent one year ago and 36 percent two years ago. Just 5 percent anticipated declines in revenues, the lowest proportion in five years. Given that six-in-ten firms expected no increase in the prices they charged, most of the revenue gains were expected to be from increased sales. The relative inability to pass along cost increases to their customers meant that managing costs was a top priority for one-in-five firms. Another one-in-four firms placed greater emphasis on maintaining or expanding their customer base.
Profit Rise Anticipated. Increased profits during 2011 were anticipated by two-thirds of all firms, up from just one-in-three CEOs who expected rising profits at the lowpoint two years ago. There were a number of issues that firms believe will limit their profitability, including the impact of the new health care legislation and continued limits on the availability of credit. However, firms thought that their enhanced profitability in 2011 would mainly stem from greater sales prospects they now faced due to the upturn in the economy.
Investment Plans Improve. Planned investments in new plant and equipment continued to grow in the 4th quarter 2010 survey. Among all firms, 46 percent planned to increase their investment spending, up from 34 percent one year ago. Just one-in-ten firms expected no increase in their fixed investments in 2011, down from a peak of 44 percent two years ago. While there remains some uncertainty about whether the strength in their future sales would be long lasting, the investments now planned by CEOs have increasingly reflected the likelihood that growth in their firm’s sales would justify those investments over the foreseeable horizon.