Despite Slight Uptick in 2016 GDP Views, CEOs Worried About Flat Economy

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The Business Roundtable CEO Economic Outlook Index is a quarterly composite index of plans of the chief executive officers for the next six months. The results combined expectations of sales, capital spending and employment. Unfortunately, this round is not looking very good at all despite what is still a reading in positive territory.

The CEO Outlook Index was at 73.5 in the second quarter of 2016, but the third quarter index reading fell down to 69.6 in Monday’s report. What needs to be addressed here is that the long-term average of the CEO Outlook Index is 79.6 — a full 10 points higher. The breakeven point of 50, indicates continued economic expansion, but expansion that is well below the full potential of U.S. economic growth.

CEOs now expect lower rates of sales. Still, their plans for hiring are barely negative and plans for capital spending are up very modestly in the third quarter of 2016. Overall, the Business Roundtable is representing that this quarter’s results suggest that the American economy is likely to continue to experience lackluster growth.

Individual groups in the index were shown as follows:

  • On sales trends, 59% of CEOs see an increase ahead, with 29% being flat and 11% expecting a decrease. Those might not sound bad, but the index drop from the second quarter to the third quarter was a full drop of 9.3 points.
  • On employment change, 27% of CEOs see an increase, followed by 37% with no change and 36% seeing a decrease. All in all, that index was down by 3.4 points from the second quarter.
  • Capital spending is expected to be up on a miniscule amount, with that sub-index rising 0.8 points in the third quarter from the second quarter. Some 38% of CEOs see increasing capital spending, with 43% seeing no change and 19% expecting lower spending.

In their fourth estimate of real GDP growth for 2016, the Business Roundtable said that CEOs expect 2.2% growth, a slight uptick from their 2.1% estimate in the second quarter of 2016 and roughly in line with other well-regarded estimates.

The third quarter 2016 survey was conducted between August 3 and August 24, 2016. Responses were received from 144 member CEOs.