Moderator: Ivan Seidenberg
March 30, 2011
8:30 am CT
Coordinator: Ladies and gentlemen, thank you for joining Business Roundtable’s Briefing on its First Quarter 2011 CEO Economic Outlook Survey.
The members of Business Roundtable are Chief Executive Officers in the nation’s leading companies. Collectively, they represent more than 13 million employees and nearly $6 trillion in annual revenues. The results of Business Roundtable’s First Quarter 2011 CEO Economic Outlook survey reflect expected business conditions from their member’s companies’ perspectives for the next six months.
Conducted quarterly since the fourth quarter of 2002, Business Roundtable CEO Economic Outlook survey is the leading CEO-based survey of sales, capital spending, and employment projected over the next six months. This current survey was completed between February 28 and March 18. You can find an interactive chart illustrating these results, results from previous quarters and comparisons with key economic metrics, such as GDP and employment, at www.brt.org/ceo_survey for more information.
Before I turn the call over to our host, please note that all telephone participants are in listen-only mode at this time. Later, we will conduct a question-and-answer session where you will be given the opportunity to ask questions about the CEO Economic Outlook Survey. If you should require assistance during the call, please press star 0. Today’s conference is being recorded, if you have any objections you may disconnect at this time.
With that, I will now turn things over to our host, Mr. Ivan Seidenberg, Chairman and CEO of Verizon Communications and the Chairman of Business Roundtable. Also joining Mr. Seidenberg is Governor John Engler, President of Business Roundtable. Mr. Seidenberg?
Ivan Seidenberg: Well, thank you very much and good morning, everyone. Thank you for joining us for the release of the BRT First Quarter 2011 CEO Economic Outlook Survey. Governor Engler and I look forward to reporting on the survey and answering any questions you might have in just a moment.
As you can see, this quarter’s survey results show our CEOs see momentum in the U.S. economy. We collectively are expecting increased sales, and as a result, expect to do more investing and hiring over the next six months. When demand goes up, obviously capital spending and employment follow closely behind.
Let’s just take a quick look at some of the results and the outlook for the next six months.
I would start by saying that we had, I’m told, over 140 respondents to this, which is a very large sample of our membership, so it’s very reflective and we’re very encouraged to see so many people participating in the survey. On sales, you will see all the numbers trend better than they did in the last quarter – 92% of member CEOs anticipate sales will increase, which is up from last quarter, only 8% expect sales to remain the same, which was 15% last quarter, and none of the CEOs expect sales to decline, down from last quarters’ 4%.
On capital spending, you can see 62% of member CEOs project higher spending in the next six months, just slightly higher than the 59% who projected increased spending last quarter; both good numbers. Thirty-two percent expect spending to remain the same, also not bad, exactly the same as those who projected even spending last quarter, and only 6% project a decline, down from last quarters’ 9%.
Unemployment; 52%, more than half of member CEOs, expect to add employees. More than the 45% who did last quarter. This is a little bit better as well. Thirty-seven percent expect employment to remain steady, about even with the 38% we did last quarter, and 11% project lower employment, down from last quarters’ 18%.
So as you now, each quarter 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. This quarter’s CEO Economic Outlook survey Index expanded to a 113. I’d like to remind all of you that our index is a composite diffusion index centered on 50, and results can range from a negative 50 to a positive 150. An index reading of 50 or lower is consistent with overall economic contraction, while the reading of 50 or higher is consistent with expansion.
So in closing, with today’s survey results, we have seen three consecutive quarters of growth in the CEO Survey. Today’s numbers show an uptick in sales, CapEx and employment over the next six months when compared to the last survey. We’re encouraged by these results and we’d like to chat with you about what they really mean.
So, thank you very much for your participation this morning, and Governor Engler and I will be happy to answer any questions. Thank you.
Coordinator: If you are on the phone and would like to ask a question about Business Roundtable’s CEO Economic Outlook Survey, please press star 1. We request that you limit your questions to the CEO Economic Outlook Survey. We will now take your questions.
Our first question will come from Scott Malone of Reuters. Your line is open.
Scott Malone: Good morning. I wanted to talk a little bit more about the change in stance on hiring. Obviously, that’s been a focus, really since the recession was declared over - that they’ve remained skittish on that. Anymore color you can offer on confidence around hiring, on [the] magnitude we might expect, in terms of hiring. Also, just - I wanted to confirm that that 52% number was the highest in the survey’s history.
Ivan Seidenberg: Yes, well, I think we’ll double team this, Governor Engler and I. I think on the question of hiring, remember we’ve talked about this the last couple of quarters. We have this timing effect, so as we keep a steady flow of capital investment by BRT member companies and we continue to do that over a long period of time, and we’ve seen some stability at increasing capital spending. We’ll certainly see sales forecasts go up, and then as we do that we’ll start to see hiring.
So, I do think there is a time lag here to some extent. We are also talking about the biggest 200 companies in BRT, so when you look at it from that standpoint, these companies have given strong signals about their willingness to expand capacity, replenish inventories, begin to move down the value chain. And we can take a look at - over the next several months of improvement in hiring; although, you can see the numbers are not as robust as they are for sales and capital.
And perhaps, Governor Engler, you can add some more to that.
John Engler: One of the points I’d make, if you go back and look at the last quarter, we actually jump from 31 to 45 [%]. It had a big 14% jump at the end of last year, so you’re exactly right. The 52% is the highest number, but the jump is actually a little more modest than it was a quarter ago. It’s positive.
I think what’s happened is the data’s pretty clear. There’s been dramatic productivity gains coming out of this great recession, but I think you’re at the point – I mean, autos has been one of the strong performing sectors. They’ve actually had to put some people back to work; they had to open some plants, and add some shifts. And they reach a limit at a point where productivity, you know, can’t run a third shift in some cases.
And so, that’s a little bit of what’s going on. It’s clearly better news, but lots of challenges remain and we’ll probably get into those in some of your questions.
Scott Malone: Thank you.
Coordinator: Our next question will come from Ian Swanson of The Hill. Your line is open.
Ian Swanson: Hi, I think I wanted to bring up one of those challenges. There seems to be an increasing possibility of a Government shutdown for some period of time in Washington. Does that have any effect on the growth that you’re seeing in the private sector and expecting to see?
Ivan Seidenberg: Well, I can answer that from my perspective. I don’t think any of the CEOs would welcome a Government shutdown. I think you have all sorts of disruptions in the value chain, the supply chain, and our government services, so hopefully that could be avoided.
My guess is everybody answered this survey, I know I did, anticipating the Government would not be shut down. So, to me the survey results need to be set aside if there is actually any kind of a protracted shutdown. So, we’re all pushing for both the Administration and Congress to get a resolution of this on time.
Governor, do you agree?
John Engler: Oh, I totally agree. I mean, obviously, until the last moment at the last second, we hope that a deal can be struck in the short-term. And we’re also continuing to be very aggressive in saying that this is the time, with divided government, to actually look long-term at some of the structural deficits that the nation confronts, because when you think about what overhangs our fiscal future, which impact our economic future, there’s no questions the debt and deficit that we’ve got is not sustainable.
Ian Swanson: If I could just follow-up. Could you talk at all about what kind of supply disruptions might come into play because of this? I’m not sure if that’s clear to everybody.
John Engler: Well, Ivan might want to comment, but just the tech sector, Ivan, you can comment on that, but I mean there’s ongoing contracts that are there that suddenly get stopped. There’s work underway that gets interrupted. It ends up costing more in some of these cases where you have to stop something and then try to restart it, especially if that interruption is any period of time.
Ivan Seidenberg: Yes. Well, Ian, I’m not the expert, but just as sort of a guy hanging out for the last 30 years watching this, I mean the government shuts down, people are not going to file their income taxes on time. I think every regulatory agency’s got transactions and dockets and licenses and, I mean I can probably go on forever.
I suspect my industry is not any different than every other industry that’s got interactions with government. So, I think it’s a pretty serious issue when you
don’t have the government operating in the economy for a day or five days or two weeks, whatever.
John Engler: The other thing it does probably is it makes it weird out there in the markets. I mean, maybe interest rates go higher all of a sudden; maybe you get stock market reactions. You get a lot of things. The law of unintended consequences kicks in and no one knows.
Plus, we’re not doing geopolitics here, but if you look at what is going on around the world today – from the Middle East to even Japan trying to recover – this is sort of not a very opportune time to be having the U.S. Government out of business for a few days.
Ian Swanson: Thanks very much.
John Engler: I’m hoping they’re going to work it out. I think everybody wants to get it done.
Ivan Seidenberg: So Ian, just to put an exclamation point on this. I think it would be fair to say that from Governor Engler and my standpoint representing BRT, we don’t get into the middle of the negotiations on the budget, but we both encourage both parties to make Government continue to operate come this deadline.
Ian Swanson: Thank you.
Coordinator: Once again, if you have a question, please press star then 1 at this time.
Our next question will come from Aaron Lorenzo of BNA. Your line is open.
Aaron Lorenzo: Thank you. Good morning. You just touched on some of these events happening around the world, could you comment on the potential impact to higher oil prices on your expectations for increasing sales, spending and jobs, and - or increasing GDP?
Ivan Seidenberg: Okay, this is requires probably a lot more expertise than I have on this question. But listen, we all filled out the surveys. Oil prices were a little bit lower than they were right now, because February 28 to March 18 nobody took into account this little extra hump that we’ve seen over the last 30 days.
So, I think it will have an effect longer-term, (unintelligible) tell you have to see these prices stabilize over some period of time, like 30 to 60, or even 90 days. So at this point, it’s too early to suggest that there’s any permanent impact on the momentum that we’re reporting in our results, but we’ll keep in tune with our membership to make sure that if anything does change we’ll make sure we tell you about it.
Gov, you got any (unintelligible)?
John Engler: Oh, I would just say, I agree with what Ivan said and you probably are going to see this first with consumers. This is when you get the University of Michigan Consumer Confidence Survey out there, consumers see gas prices immediately, that’s why they’re politically pretty difficult for the Congress to ignore.
I would hope there’s some good that can come from this because there’s long been our view that domestic exploration represents a significant opportunity. Our neighbors to the north in Canada have a lot of supplies they’d like to facilitate through some large CapEx projects, like say pipelines that could get approved. There are strategies that you would think maybe in reaction to this might be undertaken.
And so I would just hope that we don’t take the position we ride it out and I don’t think people who run for office in 2012 that want to look at it from that perspective.
Aaron Lorenzo: Okay, and one last question. Considering the dates that the survey was conducted, did numbers given any consideration to the events in Japan that you also mentioned?
Ivan Seidenberg: Yes, okay. That’s a good question as well. I think our view is that since the survey was done in February into the first couple weeks of March, nobody really had any significant impact. You know, even in our own case, we’ve looked at it and we’re still working our way through what the - what any supply chain issues might be.
So, I think you’ll start to see any of that impact over the course of the earnings seasons and in the next probably month or so. Companies will probably disclose any issues they might have as they begin to report earnings. So, you probably will see that in the next month.
Aaron Lorenzo: Okay, thank you.
Ivan Seidenberg: Okay.
Coordinator: Our next question will come from Alex Kowalski of Bloomberg News. Your line is open.
Alex Kowalski: Hi. I’m curious first, what kind of news or economic evidence is actually kind of driving your sales outlook? And then, maybe if you could just talk to me if anybody has thought about what the Federal Reserve’s action for the next couple of months could do for businesses?
Ivan Seidenberg: Yes, well, I think on the first question, I think what’s driving on average the sales forecast would be consumer spending seems to be slightly stronger. So, both anecdotally and through the survey you would get that the CEOs are looking at their forecasts and seeing demand pick up.
And that’s partly because GDP is a little higher than it was this time last year and consumer spending looks a little stronger, so people are willing to deploy capital and replenish inventories. So Alex, I think on that one, remember this is looking out six months, so you don’t book it until you bank it, you know, so at this point though the - at least there’s some positive momentum on that.
Now, on the Federal Reserve actions, I guess I’ll take the safe answer by saying, I don’t think anybody anticipated any changes, so I think people would assume that projections on GDP and projections on interest rates would be about what we had been thinking they would be for the first six months or first three quarters of 2011. Gov, do you have any insight on that?
John Engler: Well, I think the second question on monetary, I mean the Fed’s been pretty clear, at least prior to Japan, prior to things breaking out in the Middle East that the QE2 is going to just kind of fade away, and that’s sort of already being priced into things, so I don’t think there’s - there’s certainly not a shock coming there.
I think how the Congress deals with the deficit has probably more significance, in terms of maybe fiscal policy than where the Fed’s going to be. We would expect to see them continue to sort of pull back to a more normal role in the economy. On the demand side, or as my Chairman just indicated, there’s this replenishment of inventories, there’s some of that restocking. You’re seeing the consumers spend a little bit – the consumer durables have been a positive.
Certainly autos, I mean big ticket items have been good. They’re not back to the hay-day of the 90’s. This is not a 16, 17 million-vehicle year here, but they’re very much on the mend and they’ve gotten their cost structures in a position now where they’re able to make some money at these sales levels, I think, and it can be sustained. And even the auto suppliers are busy and smiling a little bit these days.
So, I think technology has also been relatively strong. The services side has been a little weaker, but I think in general, again the Chairman made the point, on GDP - it’s come up a little bit, but earlier we had a question just about hiring. I think the numbers - you’ve got to have GDP growth in that 3-1/2% range or a little higher to really start to see things pick up.
And one of the things that has matched even the national unemployment rate is how many people have sort of exited the workforce and aren’t looking at the moment. So, as we said, I mean very good news in this survey in comparison to past surveys, but it’s not a sunny blue sky soft breezes, you know, nothing but smooth sailing ahead. There’s still lots of things to worry about.
Coordinator: Once again, if you have a question at this time, please press star then 1.
Our next question will come from Chris Rugaber of Associated Press.
Chris Rugaber: Hi. Yes, it’s Chris Rugaber. Thanks. And I - sorry, I did come in a little bit late, so I apologize. But let me ask, just if you can go over one thing that, also there was some interference on the phone, but when it comes to Japan and some of the other shocks, oil being the other big one, so I guess I have two questions.
It sounds like the Survey, when this was conducted, this was before the Japan earthquake, so I just want to clarify that, and so the impact of that is not reflected in this Survey. I want to make sure that’s right, and then how does that change the results of the Survey? Do you think the results would have been a lot of different if people - if it had been done later?
Ivan Seidenberg: Yes. So Chris, very quickly on the Japan issue...
Chris Rugaber: And I apologize, can you identify yourself?
Ivan Seidenberg: You want me to identify myself?
Chris Rugaber: Yes, I’m sorry.
Ivan Seidenberg: All right.
Chris Rugaber: I assume it’s...
Ivan Seidenberg: This is Ivan Seidenberg.
Chris Rugaber: Okay, I thought so, but okay. Thank you.
Ivan Seidenberg: So, on the issue in Japan I think that, yes, the survey was done pretty much before the full impact of the tragedy in Japan came to bear, but here’s what I would say. It’s going to take a few more months for people to really figure out the full impact on business of all the issues that may come from that. So, I don’t think you’ll see any new information come out very quickly.
And I think that as companies, as I said earlier, as companies report earnings over the course of April and May, anybody that has any material impact will probably disclose it in their earnings. So, I think you should look for the earnings season and beyond to get a true gauge on the Japanese issue.
Now, on the issue of oil, the same issue every time you see a spike in prices, I’m told, you’ll see some impact on consumer spending for some period of time. But again, we didn’t have - when the survey was done we hadn’t been at the full level of prices we are today, so that’s another issue that we’ll have to see going forward.
John Engler: And Ivan, I’d only add that, this is John Engler, Chris...
Chris Rugaber: (Great).
John Engler: ...that the Surveys that did come in after the events in Japan weren’t markedly different than those that came in before. So, we didn’t break them out that way, as you’ve just pointed out, and it’s really hard statistically to try to look at – it’s sort of like peeking at a pole. You don’t want - which - but if we looked at those we didn’t see anything - it didn’t dramatically alter on those that came in - the last ones that came in, which reflected Japan.
Chris Rugaber: And those were dramatic - markedly different, or were not markedly different?
John Engler: Were not.
Chris Rugaber: Oh, okay. Okay.
John Engler: Yes, were not.
Chris Rugaber: Okay. All right. All right.
Ivan Seidenberg: So - but you can’t read anything into that because I don’t think people had a lot of data to make that (unintelligible)...
John Engler: Yes. Yes. That’s why I hesitated to say that, but I also want to...
Ivan Seidenberg: So Chris, there’s no story there.
Chris Rugaber: Right.
John Engler: There’s no (direction there).
Chris Rugaber: And then just on oil though, concerns about if it stays at the levels it’s at now, is that a concern or is more that if it keeps going up will we see a big impact on consumer spending?
John Engler: Well, Ivan, you want me to...
John Engler: No, yes, go ahead. You know this better than I do. Go ahead.
John Engler: Well, no, hardly, but I think, Chris, we talked a little bit about that earlier. That’s one of those things that goes right at consumer confidence, because the commuter who are seeing those gas prices every day. When I put $90 in my Suburban last weekend, you do take notice of that and I think people that are doing a lot of driving, and that’s much of America...
Chris Rugaber: Right.
John Engler: ...they’re seeing this. You’re seeing it in the airline industry, you’re seeing it if you’re transporting something. And I was with Bill Graves, the Head of the American Trucking Association, they’re able to pass along fuel surcharges, but anybody who’s buying that shipping is obviously noticing that.
So, yes, this gets felt pretty quickly, and that’s where oil prices impact, and so there’s a defect in this. I think generally we’ve seen it where these gas prices get kind of right where they are now, there’s a little tipping point that’s in there, but you start knocking on $4 and you start - you get lots of things that - and people’s mind start to weight on them.
Ivan Seidenberg: Yes, to help everybody, if there’s a story here with these results, I think the Governor and I would kind of come at it this way.
When you look at the top 200 or so companies in the country that are part of BRT, what you’re seeing is this is the third quarter in a row where the Economic Survey would suggest that the CEOs, as they look out into the next six months, they’re seeing some continued expansion in the economy, so that’s good.
So, most of these companies – like ours – we’ve done a lot to improve our balance sheets, improve our liquidity, become more productive, deploy capital in ways that are good, and now we’re starting to see that capital being deployed to expand production, which is a good issue. But, the question of how deep this goes throughout the economy is a different question, and there, we still need a lot more information.
And some of the questions that you have raised about Japan, or oil prices or interest rates or the sustainability of this, is something that we’re hopeful this will continue to expand. But, as Governor Engler said, there’s no evidence that would suggest all of a sudden we’re hovering at 4% or 5% GDP. We’re not. We’re hovering around 3% GDP, which is a point better than last year, but that’s good, but it doesn’t suggest somehow we’ve crossed a bridge here.
Chris Rugaber: So, you said 3 - we’re hovering at 3%?
Ivan Seidenberg: Well, that’s the estimates, I think our assumption. Is that correct, Governor, about two points over 3%?
John Engler: Yes.
Ivan Seidenberg: Yes.
Chris Rugaber: That’s right. I’m sorry. Yes, that’s...
John Engler: Two point - the CEOs - the 2.9, and that’s up a couple of tenths of a point from the last quarter.
Ivan Seidenberg: Okay, are there any other questions?
Coordinator: I have no further responses at this time.
Ivan Seidenberg: Okay, that’s very good.
John Engler: Okay.
Ivan Seidenberg: So, we all thank you very much for your participation. Thank you for your interest and on behalf of Governor Engler and BRT staff, thank you very much.
John Engler: Thank you. Goodbye.
Coordinator: This concludes Business Roundtable’s Briefing on the First Quarter 2011 CEO Economic Outlook Survey.
A transcript of this call will be available tomorrow. Please visit www.brt.org/ceo_survey
for more information.