Brighter days ahead
Downsizing by big business continues to grab headlines, but middle-market chief executives are quietly confident the economy is improving as the first quarter of 2004 draws to a close, according to a survey by the world’s largest CEO development group.
The survey was conducted by TEC International, which has more than 9,000 members worldwide, including 14 CEOs of mid-sized businesses in Iowa. The TEC Confidence Index, which measures economic confidence quarter over quarter, slipped by 1.5 percent in the first quarter of 2004 after posting cumulative gains of 15.6 percent during the previous two quarters.
Terry Slinde, chairman of the TEC International group serving Iowa, said the five Iowa CEOs participating in the survey said an increase in revenues and profits over the next year will allow them to add new employees to accelerate business growth despite the slight dip in the general level of confidence.
“When big companies downsize, that seems to drive the press a lot,” he said. “It seems to me that overall, small business owners are generally optimistic about the economy and where business is going, even if there is a little bit of decline in confidence.”
Seventy percent of the respondents expect continued economic improvement during the coming year, down from 81 percent in the third-quarter 2003 survey. Richard Curtin, the TEC Confidence Index consultant and director of consumer surveys for the University of Michigan, said that dip isn’t enough to significantly alter CEOs’ business plans this year.
“Although firms did expect a slightly slower pace of growth, they still judge overall economic conditions quite favorably,” he said. “Overall, the data indicate that firms expect only a small and temporary slowing in the rate of economic growth, too small for them to make substantial changes to their investment and hiring plans.”
Three-fourths of the executives surveyed said economic conditions have improved over the past year, more than twice the number expressing confidence in the economy at the beginning of 2003. Almost 85 percent said they plan to hire new employees this year, most to fill full-time positions in their sales and marketing divisions. Seventy-two percent expected profits to rise, and for the third consecutive quarter, 50 percent of the CEOs expect to increase their investment spending this year.
Other findings included:
o Seventy percent of the CEOs surveyed identified the nation’s economic performance as the most critical issue to be addressed in the upcoming presidential election. Three-fourths of those surveyed said they would support President George W. Bush’s re-election bid.
When the question about the presidential election was first asked in the third-quarter 2003 survey, 76 percent named the economy as the most critical issue before voters. A quarter later, 56 percent chose the economy as the No. 1 election issue, compared with 37 percent who named the war in Iraq as the most critical issue.
o Half of the CEOs expected positive benefits from the accelerated depreciation now allowed under the tax code. Businesses making investments before the end of the year will be able to deduct a greater share of the cost of depreciable property in the first years after the purchase, rather than spreading the cost evenly over the life of the asset.
o One in five CEOs said their company would outsource some business operations overseas in the next year. Nearly 12 percent said they would move manufacturing functions overseas, and a smaller percentage plan to outsource information technology, sales and customer support to offshore locations.
o 7.5 percent of the CEOs plan to increase their inventory of materials to avoid rising prices on raw materials, such as steel.
ABOUT TEC INTERNATIONAL
Founded in 1957 by Wisconsin businessman Robert Nourse after his lawn mower company lost a big contract to Montgomery Ward, TEC International is the world’s largest CEO development organization for middle-market businesses. It currently has 9,000 members, including 14 in Iowa, who receive ongoing counsel on professional development and share best practices in their particular industries. Membership gives them access to confidential help in critical situations.
Terry Slinde, who heads the TEC International group serving Iowa, said member businesses outperform Fortune 500 and Standard & Poor’s 500 companies. “Iowa companies have grown dramatically,” he said. “It has to do with the fact that we work on accountability for chief executives and help them make better decisions. They grow individually as do their businesses.”
According to the organization’s Web site, www.teconline.com, member companies’ growth rates more than doubled, to 11.6 percent annually from 4.6 percent, after joining TEC.