BRT Chairman: Uncertainty is like 'cold water' for long-term planning | Business Roundtable


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BRT Chairman: Uncertainty is like 'cold water' for long-term planning

Sep 26, 2012

In outlining the results of Business Roundtable third quarter CEO Economic Outlook Survey, BRT Chairman Jim McNerney identified the fiscal cliff and policy uncertainty as major factors in CEOs' lowered expectations, "cold water" poured on long-term planning.

McNerney, Chairman, President and CEO of The Boeing Company, presented the results in a conference call with reporters. (Audio here) From his opening remarks:

This quarter’s survey shows a downtown from last quarter in CEO expectations for sales, capital expenditures and employment over the next six months. Expectations for overall 2012 GDP growth weakened from a previous estimate from 2.1 percent to this quarter’s estimate of 1.9 percent.

These results reflect global demand flattening out, particularly in Europe and China, but also a number of domestic policy issues that could have a near-term negative impact on the economy and the business climate, including automatic tax increases, across-the-board spending cuts and the failure to raise the debt ceiling. The so-called fiscal cliff and the uncertainty attendant to it certainly is cold water on long-term planning. Until a path to a resolution of these issues is identified, business confidence will likely remain under pressure.

He then detailed the specific results for each of the three categories: sales, capital investment and hiring.

Each quarter as most of you recall, we combine the three categories – sales, capital spending and employment -- into an index to provide a quick snapshot of anticipated economic conditions for the next six months. As I mentioned, this quarter’s CEO Economic Outlook Survey Index reflects a pretty significant downturn in expectations, falling from 89.1 in the second quarter of 2012, to 66 for the third quarter of 2012.

I do want to remind you, however, that our index is a composite fusion index, centered on 50, and results can range from negative 50 to positive 150, and an index reading lower than 50 is consistent with overall economic contraction, while a reading above 50 is consistent with expansion.

So, this result would reflect a slower-than-expected expansion than the last results, but still a very, very modest expansion, as with 66 compared to the 50. In closing, CEOs’ overall expectations shifted downward in each of our measures – sales, investment and employment – and projections for 2012 GDP growth are also down from last quarter, which is consistent with the sluggish U.S. economic recovery and the recent slowdown in job creation.

The past quarter had seen continuing concerns surrounding the fiscal cliff, the continued inaction in Washington that is holding up much-needed tax, fiscal, entitlements and regulatory reforms that would provide certainty for businesses, reassure markets and enhance U.S. economic growth. That, on top of moderated demand in China and Europe is really the story.

BRT Chairman John Engler later appeared on CNBC's Squawk on the Street to discuss the survey results. (Video here.) He offered a topical interpretation of the impact of Washington inaction and policy uncertainty on business investment: "It is sort of like the NFL: The players really don't know how to play the game if they don't know how it's going to be refereed. Well, in Washington our referees are on strike. They're not getting much done."

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