September 22, 2016 – CEOs expect roughly unchanged plans for hiring and nearly flat plans for capital spending in the third quarter of 2016, according to the recently released Business Roundtable ‘CEO Economic Outlook Survey.’
Overall, the results suggest that the American economy is likely to continue to experience lackluster growth, although moderate expansion has been reported by other less Republican-influenced trends data. The report found that 27 percent of CEOs expect their company’s U.S. employment to increase in the next six months. Thirty seven percent said they expect no changes in their staff levels while another 36 percent plan to decrease staffs. Why the split in sentiment?
The CEO Economic Outlook Index — a composite of CEO projections for sales and plans for capital spending and hiring over the next six months — overall declined by 3.9 points, from 73.5 in the second quarter to 69.6 in the third quarter.
Economy Performing Below Potential
The Index remains below its historical average of 79.6. It remains well above 50, indicating continued economic expansion — although well below the full potential of U.S. economic growth.
CEO expectations for sales over the next six months declined by 9.3 points, while expectations for hiring declined by 3.4 points from last quarter. CEO plans for capital expenditures ticked up slightly by 0.8 point relative to last quarter.
“To increase investment and opportunity, Roundtable members continue to think Washington can better support our economy through measures that create growth,” said Doug Oberhelman, chairman and CEO of Caterpillar and chairman of Business Roundtable.
“For the past year, the Business Roundtable CEO Economic Outlook has consistently remained below its long term average,” he said. “This reflects the unfortunate new normal — where the U.S. economy is pretty much stuck in neutral rather than moving forward. The continued lack of action on an aggressive pro-growth policy agenda that includes tax reform, trade expansion and a smarter approach to federal regulation contributes to an economy that continues to perform below its potential.”
Whether the election of Hillary Rodham Clinton or Donald J. Trump will make matters worse or better remains to be seen. But clearly the U.S. is heading into unchartered territory after the fall elections. Washington gridlock is expected to deepen, meaning the economic might of the U.S. will continue to be riddled with unfulfilled potential.
“Unfortunately, it’s more of the same ‘one step forward, one step back’ we’ve been experiencing for a number of years now,” Mr. Oberhelman said. “We need sustained, healthy growth.” Absent that, the U.S. economy will continue to be stuck in the slow lane, he added.
“My gut reaction to the Business Roundtable Outlook report is that it seems accurate on what I’ve heard and felt,” said Steve Kasmouski, president of WinterWyman Executive Search. “It’s such an unusual election year with a lot of trepidation, especially with one of the candidates being unknown as a politician.”
Heading a business that is, historically, heavily influenced by the economy, Mr. Kasmouski said this period feels similar to past election years where companies have held back and played it safe in spending capital, investing for the long term and being reluctant to expand hiring. “This doesn’t seem atypical at all. What we do know is that no matter how uncertain the economy feels, it always settles back into a groove.”
What’s more, “search mandates today are focused more on top line growth than in prior years, reflecting the challenge that companies are having in driving growth beyond the single digits,” said Rod McDermott, managing partner of executive search firm McDermott & Bull.
“Leaders in marketing and sales, as well as executives in roles such as FP&A are in demand to analyze, forecast and better exploit new and existing revenue channels, as growth isn’t coming as easily as it once was,” he noted.
Modest U.S. Hiring Plans
According to a separate report, 22 percent of U.S. employers anticipate increasing staff levels during the fourth quarter, according to the latest Manpower Employment Outlook Survey. This is a one percent decrease from the third quarter and a one percent increase from Q4 of 2015. Six percent of employers expect workforce reductions and 69 percent expect no change in hiring plans. The final three percent of employers are undecided about their hiring intentions.
Employers Cautiously Hesitant
“Employers are optimistic, though hesitant, with their hiring intentions and we’re pleased to see levels we were seeing before the recession,” said Kip Wright, senior vice president of Manpower North America. “While employers are looking to grow their workforces, many are challenged to find candidates with the right skills. As the hiring outlook continues to improve, attracting and retaining skilled talent will become even more difficult. That’s why we’re hearing more about companies like AT&T and Marriott that are adopting strategies to develop their employees’ skill sets and competing to attract those with the most in-demand skills – especially in industries like IT and engineering.”
A More Upbeat Outlook
A recent CareerBuilder study found an even brighter outlook with 50 percent of employers plan to hire full time, permanent workers. Another 29 percent of employers plan to hire part-time employees, on par with 28 percent last year; and 32 percent of employers plan to hire temporary or contract workers, down slightly from 34 percent last year.
“Based on our study, the U.S. job market is not likely to experience any major dips or spikes in hiring over the next six months compared to last year,” said Matt Ferguson, chief executive officer of CareerBuilder. “While certain industries or locations may produce more job growth, hiring overall will hold steady throughout the election season and through the end of the year.”
Department of Labor’s Unemployment Results
Employers added 151,000 jobs last month as the U.S. unemployment rate remained unchanged at 4.9 percent. Employment in food services continued to trend up during the month (+34.000). Over the year, the industry has added 312,000. The social assistance sector added 22,000 jobs over the month, with most of the growth in individual and family services (+17,000). Financial activities employment continued on an upward trend in August (+15,000), with a gain in securities, commodity contracts, and alternative investments (+6,000). Over the year, financial activities has added 167,000 jobs. And healthcare employment continued to trend up during the month (+14,000). In August, hospitals added 11,000 jobs, and employment in ambulatory healthcare services trended up (+13,000).
“The economy continues to power forward despite the uncertainty and geopolitical risks out there in the world,” said Chris Rupkey, chief financial economist at MUFG Union Bank. “The economy is moving forwards, not backwards.”
Contributed by Scott A. Scanlon, Editor-in-Chief, Hunt Scanlon Media