Bay Area Economic Prognosis: More of the Same, CEOs and Business Executives in the Region Confirm; Economic and Business Shakeout Continues.

Business/News Editors

SAN FRANCISCO--(BUSINESS WIRE)--Feb. 7, 2003

Regional economic conditions remained slightly sour, according to a majority of 437 Bay Area CEOS and business executives questioned in this quarter's Bay Area Business Confidence Survey.

In this quarterly tracking of the nation's fifth and the world's twentieth largest economy, the Bay Area Business Confidence Index stayed flat at 47, the same reading as October 2002. An Index reading above 50 means there are more positive than negative responses.

Of the 437 CEOs and business executives confidentially surveyed during January 15 - January 31, 2003 across the nine-county Bay Area, 39 percent believe that Bay Area economic conditions are moderately worse than six months ago, and 7 percent think conditions are substantially worse. The largest group, or 45 percent, considers conditions to be the same as they were six months ago.

"The results of the survey echo the findings of the Bay Area Council's Outlook Event in early January," said Sunne Wright McPeak, the president and chief executive officer of the Bay Area Council. "Looking ahead to the next six months, many think the local economy will be relatively flat, followed by a slow up tick. These results are not so much pessimistic as realistic. It will be a challenge, but we deduce that the underlying economic factors in the Bay Area, coupled with the region's renowned spirit of innovation, favor some growth in the later half of 2003."

Lenny Mendonca, a director at McKinsey & Company, the international management-consulting firm that helped with the study, noted, "The economic outlook still concerns Bay Area executives. Nevertheless, they intend to increase I.T. spending and that's important. Growth in capital investment will be the platform for recovery."

Planned Increases in I.T. Spending

As last quarter, many companies still plan to maintain or increase their I.T. investments. A full 20 percent of respondents report that they will increase their I.T. investment and 55 percent will maintain their current level of I.T. spending. Only 11 percent anticipate reductions. Of those planning to increase their I.T. spending, most will spend just a bit more: 71 percent will grow their spending between 0-10 percent; 19 percent predicted an increase of 11-25 percent; and 4 percent will spend 26-50 percent more.

Federal Plans For Stimulating Economy Better Than State Plans;

Neither Popular

As part of this quarter's survey, the Bay Area Council asked executives to voice their opinion about both Federal and State proposals to stimulate economic recovery. CEOs and business executives favored the federal proposals with 30 percent rating them as good and five percent viewing them as excellent, but a majority of 64 percent thinks the federal proposals are poor or only fair. Respondents expressed very little confidence in California's attempt to stimulate the state economy with 94 percent calling state efforts poor or only fair. Just 6 percent of business executives rate state efforts as good.

Rising Housing Costs A Problem For Employers

Nearly a quarter of CEOs and business executives (24 percent) reported that the cost of housing in the Bay Area makes it very difficult to retain quality employees. Another 53 percent said that housing costs make it somewhat difficult to retain their best employees.

Confidence for National Economy, Industry Expectations Fall

Slightly

Fewer respondents to the survey expressed optimism about the national economy and about the industries they lead than last quarter. Only 18 percent of the survey's participants think the national economy is better now than it was six months ago, but 46 percent expect it to improve in the next six months. While 40 percent of respondents expected improvement in their industry last quarter, today only 37 percent are optimistic about the next six months.

The Bay Area Business Confidence Survey

The Bay Area Council developed the Bay Area Business Confidence Survey to measure employer expectations of the Bay Area economy. The January survey is the sixth in a series of quarterly measures of business confidence. The next survey will be conducted and reported during the spring of 2003. Survey findings will be published in an upcoming edition of the Bay Area Economic Pulse and can be accessed from the Business Confidence survey page at www.bayareacouncil.org.

The confidential survey of 437 business executives was conducted January 15 - 31, 2003, by Evans/McDonough Company Incorporated for the Bay Area Council with the assistance of McKinsey & Company. Participating organizations include: Bay Area Council, Contra Costa Council, Contra Costa Economic Partnership, Economic Development Alliance for Business, Oakland Chamber of Commerce, San Jose Silicon Valley Chamber of Commerce, San Francisco Chamber of Commerce, San Rafael Chamber of Commerce, Santa Rosa Chamber of Commerce, Silicon Valley Manufacturing Group, Solano Economic Development Corporation, and Tri-Valley Business Council. All members in the database were invited to participate through the Internet or by fax. The survey results are weighted to reflect the approximate percentage of employees in each Bay Area County.

A key element of the Bay Area Business Confidence Survey is the establishment of a Bay Area Business Confidence Index that tracks changes in business executives' confidence over time. The Index expresses survey results in a single figure based on an average of responses to four key survey questions on the direction of the Bay Area economy. The purpose of the Index is to express the survey results in a single figure that can be related to expected changes in economic performance

The Bay Area Council

Founded in 1945, the Bay Area Council (www.bayareacouncil.org) develops and drives regional public policy initiatives and researches critical infrastructure issues. Led by CEOs, the Bay Area Council presents a strong, united voice for more than 275 major employers throughout the Bay Area region in promoting economic prosperity and quality of life. Sunne Wright McPeak has served as president and CEO of the Bay Area Council since 1996.

About McKinsey & Company

McKinsey & Company (www.mckinsey.com) is an international management-consulting firm that helps leading corporations and organizations make substantial and lasting improvements in their performance. With approximately 6,000 consultants deployed from eighty-two offices in forty-three countries, McKinsey has expertise on strategic, operational and technological issues.

Evans/McDonough Company Incorporated

Evans/McDonough Company Incorporated (www.evansmcdonough.com) is a full-service opinion research and strategic consulting firm serving a broad range of corporate, political and institutional clients. Founded in 1989, EMC principals have been involved in thousands of public opinion studies, ranging from political and public policy strategy polls to extensive market share and customer satisfaction surveys.

For additional information, please visit the Bay Area Council Web site at www.bayareacouncil.org or contact: John Grubb, Hill and Knowlton, 415/281-7131, [e-mail]