Executives Fear Effects of Oil, Interest Rates
Top U.S. executives are concerned that rising oil prices and interest rates, as well as a possible easing in consumer spending, could bring slower economic growth, according to a pair of surveys released Wednesday.
“There is no doubt that high energy prices, especially in the last several months, have posed a challenge to the economy and the nation’s leading companies,” said Hank McKinnell, chairman of the Business Roundtable and chief executive of drug maker Pfizer Inc., in a conference call with reporters.
A survey of Roundtable members -- CEOs from large U.S. companies -- found that the overall CEO economic outlook index was 98.6 in June, down from a 102.2 reading in March. Any number higher than 50 indicates economic expansion.
CEOs expect overall economic growth to be 3.4% in 2006, compared with 3.5% in 2005 and above their prior view of 3.2%. The improved growth outlook for the year largely reflects the strong 5.3% increase in first-quarter gross domestic product, McKinnell said.
A separate study, the Duke University/CFO Magazine Business Outlook, indicated that 46% of chief financial officers had grown less optimistic about the economy during the quarter ended June 1, compared with 25% who had reported a loss of confidence three months earlier.
The surveys were released amid concerns that high energy prices and inflation fears will prompt the Federal Reserve to raise U.S. interest rates further.
McKinnell said that, on balance, CEOs seemed more confident than Wall Street, a difference he attributed to a belief in CEOs’ ability to improve productivity to offset rising costs.
The Duke-CFO survey said executives were worried that a continued rise in inflation, interest rates or oil prices could take a serious toll on their companies’ bottom lines. “We are a step or two closer to any one of these risk factors starting to have a negative impact,” said John Graham, professor of finance at Duke, in Durham, N.C.
One of the Fed’s top policymakers said Wednesday that core inflation may have already breached its acceptable upper level and the Fed must be ready to reset policy if the outlook has indeed worsened.
“Core inflation, which excludes volatile food and energy costs, has moved into the upper end of -- or beyond -- the range I consider acceptable over time,” Federal Reserve Bank of Atlanta President Jack Guynn said in a speech.
Guynn is a voter this year on the policy-setting Federal Open Market Committee.
“If we’re on target with our present forecast for growth to moderate to a sustainable pace and for inflation to fall back within acceptable bounds, I would say that monetary policy is now close to where it should be,” he told the Council for Quality Growth in Duluth, a suburb north of Atlanta.
