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Top CEOs lower their economic outlook, plan less spending and hiring

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Chief executives at the largest U.S. corporations lowered their outlook for economic growth and planned less spending and hiring amid reduced expectations for sales during the next six months, according to a new survey.

The CEOs forecast the economy will expand 2.5% this year, down from the 2.8% estimate in the first quarter, according to the quarterly survey released Monday by the Business Roundtable trade association.

The group’s economic index declined to 81.3 from 90.8 in the first three months this year. The long-term average is 80.5, and the index can range from 150 to negative 50.

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These results are consistent with an economy that continues to operate well below its full potential,” said AT&T Inc. Chief Executive Randall Stephenson, the group’s chairman.

The drop in the index was caused by a major decline in expectations for sales, hiring and capital spending.

Seven in 10 CEOs said they expected sales to increase in the next six months, the lowest level since 2012. The figure was 80% in the first quarter.

With less money coming in, the percentage of CEOs expecting to increase capital spending and hiring also fell.

Just 35% said they expected to boost spending, compared with 45% in the first quarter. And more CEOs said they would hold off on hiring additional employees — and even would lay off some workers.

About 34% said they expected to increase their company’s U.S. employment, down from 40% in the first quarter. Meanwhile, 26% said they would reduce employment, up from 23% in the first quarter.

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The survey of 128 CEOs was conducted from April 22 to May 13, before the Commerce Department reported that the economy contracted at a 0.7% annual rate in the first quarter.

Economists said the quarterly contraction — just the third since the end of the Great Recession in 2009 — was caused by unusually severe winter weather, a West Coast ports dispute and the rising value of the U.S. dollar as other major economies struggle.

“Obviously, a strengthening dollar and weak growth abroad have taken their toll on the U.S. economy,” Stephenson said.

Recent economic data have been more upbeat, including a robust 280,000 net new jobs created in May, and growth is expected to return in the second quarter.

“In the global economy, America is a major source of strength,” President Obama said Monday after a meeting of world leaders in Germany.

But Stephenson said his group’s survey results “suggest a slow economic start” to the second half of the year.

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To boost growth, he said, Congress should pass the so-called fast-track trade measure, which would help the Obama administration complete a pending trade pact with leading Pacific nations.

The Senate approved the measure last month, and the Business Roundtable is urging the House to follow suit, Stephenson said. The group has made passage a top priority and is lobbying House members heavily, he said.

Follow @JimPuzzanghera on Twitter

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