CEO Confidence Drops to Lowest Level in Three Years; But leaders still optimistic, according to Grant Thornton Business Optimism Index of U.S. economy, business growth and hiring expectations.

CHICAGO -- Driven by reduced optimism about the U.S. economy, the Grant Thornton Business Optimism Index - a semi-annual confidence measure among U.S. business leaders - has fallen to its lowest level since November 2002.

The Business Optimism Index, part of Grant Thornton's semi-annual Survey of U.S. Business Leaders, is comprised of three measures:

--U.S. economy: Business leaders' perceptions on whether the U.S. economy will improve, remain the same of get worse in the next six months

--Business growth: Perceptions about the growth of leaders' own businesses over the next six months

--Hiring expectations: Whether businesses expect the number of people they employ to increase, remain the same or decrease in the next six months

"Compared to late 2004, when this survey was last conducted, the Index has dropped from 72.8 to 68.6 on a 100-point scale," said Cal Hackeman, partner in charge of the Grant Thornton Business Leaders Council. "What this tells us is that CEOs - while still optimistic - may be frustrated with ongoing discussion of an improving economy with little solid proof."

On the U.S. economy, 43 percent of the 300 survey respondents feel the economy will improve over the next six months, compared to the 68 percent who felt the same six months ago. This marks the third time optimism has declined since the three-year high of 83 percent in the fourth quarter of 2003.

When it comes to business growth, however, CEOs' outlook is a bit brighter, with nine in 10 respondents saying they were "optimistic" about their businesses' growth in the next half-year. This includes nearly 30 percent who are "very optimistic." The numbers in this category have remained relatively flat compared to surveys conducted six months and one year ago.

In the third category of analysis, hiring expectations, business leaders demonstrate their consistent optimism for business growth despite the decreasing level of overall confidence in the U.S. economy, with more than half - 55 percent - planning to hire more employees in the next six months.

"In addition to looking at the economy, business growth and hiring, we also looked at how these factors are influencing CEOs' sales projections, and not surprisingly, 14 percent expect to be below target, up from eight percent," said Hackeman. "That said, the Index still shows nearly three in 10 CEOs expecting to exceed their sales targets for the next six months."

Fifty-four percent expect to meet their sales projections.

Industry Challenges Over the Next Five Years

In industry-specific findings, the Survey of U.S. Business Leaders found that:

--74 percent of consumer and industrial products companies predict pricing pressure, 68 percent are contending with rising medical and other benefit costs, and 65 percent anticipate fuel and raw materials cost increases over the next half-decade.

--In the technology sector, CEOs cited several significant challenges they expect to face between now and 2010: 79 percent predict their biggest industry hurdle will be ensuring their employees understands their company's vision and "are pulling in the same direction"; 72 percent see a challenge in finding and retaining talented people for new growth positions; 67 percent are concerned about converting good ideas into commercially viable products and services; and 61 percent expect price and cost pressures, including the cost of litigation.

About the 11th Annual Survey of U.S. Business Leaders

The Grant Thornton Business Leaders Council is composed of 35 forward-looking, innovative business leaders and executives from businesses nationwide.

More than 300 executives from various industries responded to the survey. The Grant Thornton Survey of U.S. Business Leaders is published by Grant Thornton LLP. It is not intended to answer specific questions or suggest suitability of action in a particular case. For more information on the survey or the Grant Thornton Business Leaders Council, contact us via e-mail at [e-mail], or contact the Grant Thornton location nearest you.

About Grant Thornton

Grant Thornton LLP is the U.S. member firm of Grant Thornton International, one of the six global accounting, tax and business advisory organizations. Through member firms in 110 countries, including 50 offices in the United States, the partners and employees of Grant Thornton member firms provide personalized attention and the highest quality service to public and private clients around the globe. Visit Grant Thornton LLP at www.GrantThornton.com.