CEOs less willing to hire; sales a worry

By Reuters
Posted Sep. 28, 2010 at 4:57 p.m.

U.S. chief executive officers’ view of the economy darkened in the third quarter, with top executives saying they were less willing to hire new workers as they fear sales growth will slow.

The change in mood reported in a Business Roundtable survey on Tuesday bodes poorly for the tepid U.S. economic recovery, which has been held back by stubbornly high unemployment. The news was not entirely grim, though — more CEOs expect to boost their capital spending over the next six months, a trend that reflects both strong corporate balance sheets and a desire to lift productivity.

“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, breaking a five-quarter streak of improvement. The reading 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. (For a graphic, see: link.reuters.com/mew75p )

U.S. companies have by and large reported strong profits this year despite soft revenue, as last year’s aggressive cost-cutting actions, including millions of layoffs and cuts to employee benefits, boosted their profit margins.

“They are lean and mean and they have laid off lots of people. They are very efficient and their output is enough to meet demand, so results look good,” said Keith Springer, president of Capital Financial Advisory Services in Sacramento, California. “That doesn’t help the overall economy because it doesn’t help more people get jobs.”

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