BOCA RATON, Fla. – Chief executives of many of America's biggest companies remain braced for short-term U.S. economic weakness but most see the economy recovering from recession this year, according to a survey released Wednesday.
The Business Council of chief executives said a February survey of its members found that 53 percent expect a decline this year in capital spending. Federal Reserve officials regard business investment as a key determinant of the strength of any recovery from the recession that began last March.
The survey results come on the heels of an economic assessment from Fed Chairman Alan Greenspan, who told Congress earlier Wednesday the U.S. economy was turning the corner while cautioning the rebound likely would be moderate.
Another 28 percent of the elite chief executives from transport, drugs, manufacturing, finance, technology and other sectors saw capital spending staying flat in 2002.
Seventy-five percent of the executives surveyed, many of whom said the accounting scandals touched off by the demise of energy trader Enron Corp. will raise financing costs, see the U.S. economy as currently still locked in recession.
But 77 percent see the downturn ending this year. About half said the recession will be over by mid-year, according to the survey released at the start of a three-day meeting of The Business Council in Boca Raton, Florida.
More than 100 sitting and former chief executives, including the leaders of Dell Computer CSX Johnson & Johnson and Sprint were attending private Business Council meetings at the Boca Raton Resort & Club, according to a spokesman.
Many analysts agree with the CEOs that the U.S. economy will begin to recover this year, saying the Fed's 11 short-term interest rate cuts in 2001 set the stage for renewed growth. New data released Wednesday showed a bigger-than-expected increase in demand for costly manufactured goods last month.
SMALL IMPROVEMENT IN GDP
Seventy-seven percent of the executives predicted that U.S. gross domestic product (GDP) growth will be 1.5 percent or less during 2002, or a bit better than last year's pace.
The Fed, in its semiannual set of economic forecasts released Wednesday, projected that GDP, the broadest measure of total economic activity, will grow by about 2-1/2 to 3 percent this year. That would mark a sharp improvement from lackluster 1.1 percent growth in GDP in 2001, the most sluggish performance since a contraction of 0.5 percent in 1991.
A healthy 63 percent majority sees better growth in 2003 than in 2002, with 32 percent saying GDP will grow substantially faster next year than this.
Price inflation remains firmly under control and should be under 3 percent this year, said 93 percent of the executives.
Even so, they said cost containment remains a central concern, with 23 percent predicting 2002 job cuts at their firms. A third said the pace of new hires would remain stable, while 41 percent expect their hiring to slow.
Nearly a third, or 31 percent, of the CEOs said the fallout from Enron and suspect bookkeeping at other prominent firms will raise their financing costs. Some 18 percent said such added costs might come, but believe it was too early to tell.
A big majority of the executives, or 68 percent, said the Enron inquiries and increasing demands by investors for more detail and transparency of their finances had not altered their usual financial procedures and standards.
"At the same time, an overwhelming majority (95 percent) expects that there will be new legislation and/or regulation as a result of the current controversies," according to prepared remarks on the survey by William Harrison, chief executive of J.P. Morgan Chase
Most executives, some 79 percent, expect the resulting new government rules will increase their costs of doing business.