Survey Finds Executives Still Cautious About Long-Term Economic Outlook; Projecting Modest Growth Over Next 12 Months

Optimism among senior executives about the future of the economy increased slightly in the last three months, as companies anticipate continued growth but face challenges adjusting to the new post-recession marketplace. Measuring the economic assumptions of more than 400 executives across six functional business roles, the latest Business Barometer released by the Corporate Executive Board (CEB) shows that sentiment among business leaders is improving due to a positive outlook for sales, IT spending and emerging market growth.

One of the more significant signals from CEB's Q4 Business Barometer is the continued increase in the number of executives who expect rising cost pressures. Overall, 68 percent of executives expect greater cost pressures (up from 63 percent in Q3). Specifically, 74 percent of executives surveyed expect higher core input prices and 69 percent expect higher labor costs (up from 70 percent and 67 percent in Q3 2010 respectively). In addition, half of executives anticipate that energy costs will increase.

Senior executives also have a moderate outlook when it comes to their company's hiring practices. While 65 percent of executives expect hiring volume to improve, only 50 percent of executives now expect total headcount to improve (a slight increase from 48% in Q3).

Areas for Optimism

Despite these challenges, executives are feeling optimistic in a number of key areas that point to a steady improvement in the business landscape. Most notably, growth expectations for emerging markets are increasing. While 32 percent of executives see strong growth prospects in the U.S. and Europe, in contrast a startling 71 percent of executives anticipate accelerating growth in emerging economies (compared to 59 percent in Q3).

CEB's Q4 Business Barometer also indicated an improvement in the overall sales outlook with more than two-thirds of sales executives expecting sales to new and existing customers to rise in the year ahead. Fewer expect to rely on customer discounts compared to the last quarter (77 percent compared to 80 percent in Q3 2010).

Compared to Q3 2010, sentiment among IT executives has continued to increase with 56 percent saying they expect higher discretionary spending (up from 54 percent in Q3 and 47 percent in Q2 2010) and 60 percent saying they expect software spending to increase.

Additional notable findings from CEB's Q4 Business Barometer include:

-- Finance executives continue to expect increases in the number of M&A deals this year (up to 53 percent compared to 51 percent in Q3) although are not yet as optimistic as they were in Q2 (63 percent expected an increase in new deals).

-- Executive sentiment about consumer confidence remained unchanged since last quarter, with only 39 percent of executives anticipating that it will rise in the year ahead.

-- Outside of increased spending in IT, finance executives expect declines in CAPEX for facilities and manufacturing equipment as well as R&D spending, with only 43 percent of executives planning to increase their spending in that area (down from 52 percent in Q3 2010).

-- Seventy-three percent of human resources executives believe unemployment will remain high or grow higher. In relation to current employees, 47 percent of executives believe employee engagement will increase and 48 percent believe unwanted turnover will rise.

-- Sixty-seven percent of supply chain and operations executives expect an increase in the number of orders their company will receive in the next year and 63 percent anticipate higher production levels (which is only slightly down from 67 percent in Q3). 

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