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Fiscal Cliff, Global Economy Woes Fuel CEO Pessimism Fiscal Cliff, Global Economy Woes Fuel CEO Pessimism

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Economy / ECONOMY

Fiscal Cliff, Global Economy Woes Fuel CEO Pessimism

John Engler, president of the Business Roundtable(Chet Susslin)

photo of Niraj Chokshi
September 26, 2012

Pessimism among executives at large U.S. businesses hit a three-year high in the third quarter because of global economic weakness and fear that Congress will be unable to resolve its standoff over tax increases and automatic spending cuts known as the "fiscal cliff," according to a survey by the Business Roundtable.

"The so-called fiscal cliff and the uncertainty attendant to it, certainly is cold water on long-term planning,” said Boeing CEO James McNerney, who is also chairman of the Business Roundtable. “Until a path to a resolution of these issues is identified, business confidence will likely remain under pressure.”

The European crisis and slower growth in China have put a damper on sales, he said, while uncertainty over the cliff is leading companies to put off investments in new equipment and hiring of workers.

 

Just over half of the 165 CEOs surveyed expect an increase in sales over the next six months, with less than a third forecasting increased hiring and spending. The combined Economic Outlook Index fell to 66.0 in the third quarter, down from 89.1 and 96.9 in the second and first quarters, respectively. The drop, McNerney said, "reflects a pretty significant downturn in expectations." 

Still, the survey results were consistent with an economy that is still growing, albeit at a moderate pace. A reading below 50 signals economic contraction, while one above 50 indicates expansion.

To underscore his point that policy certainty is better for business, BRT President John Engler cited the National Football League's lockout of unionized referees.

"This is like the same problem the NFL is having. The players are not quite clear how to play the game because the refereeing is so bad,” he said. "Well, if the legislating is so bad, how do you play the game on taxes, on regulations?”

While a post-election deal in November or December would be ideal, a congressional punt on a long-term deal could still give the business sector more clarity, as long as it’s combined with spending and revenue commitments, McNerney and Engler said. A good starting point for a deal would be the plan offered up by the Simpson-Bowles commission, said McNerney.

And expect to hear more from businesses, Engler said, alluding broadly to post-election advertising plans encouraging action on the fiscal cliff.

The BRT survey was conducted between Aug. 30 and Sept. 14.

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