CEO Confidence Index: corner office mood is soaring.

THE OVERALL CONFIDENCE of American CEOs is soaring. They are optimistic about hiring in 2004, within limits. And a surprising number say they are going to resort to mergers and acquisitions.

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The broadest indicator, the CEO Index, rose to 178.2, a nearly 30 point gain from December. That month's number also reflected a hefty gain. So this indicator, which started out at 100.0 when we began polling our readers via email and then plunged to a low of 78.6 in the dark days of April 2003, now stands at a record high. (See chart, top left.)

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Typical of the 204 responses we received was this one from Ron Samuel, president and owner of Underwood Asset Management in Chicago: "Continued robust economic growth will characterize the U.S. economy," he wrote. "Inflation will remain tame, therefore, interest rates will remain low and stimulative. The U.S. will continue to benefit from the weakness of the U.S. dollar. The administration will continue to spur economic growth to ensure good political returns in the fall."

Of the different components within the CEO Index, Current Confidence shot up to 178.2, from 148.7 in December. This was a dramatic increase and also a reversal from the trend lines of 2003 when Current Confidence lagged far behind both the CEO Index and Future Confidence. In our most recent results, Future Confidence did increase, to 167.7, but it was a much smaller rise (from 159.0) and remains below Current Confidence. The implication is that conditions are about as good as CEOs expect them to get; they are no longer waiting for the future to arrive. Gains in the stock markets also have helped. (See chart, middle left.)

Attitudes about hiring continue to improve: Employment Confidence reached an all-time high of 170.5, up sharply from the prior month's 152.1. (For complete details, go to www.chiefexecutive.net.)

There are still warning signs on the horizon, however, particularly among CEOs of smaller and medium-sized companies who respond to our poll most heavily. "The U.S. economy is in a perilous state right now," said Scott McWilliams, CEO of Ozburn Hessey Logistics in Nashville, Tenn. "With the huge budget deficit and jobs moving outside the country, it is hard to imagine how employment is going to pick up. I personally see a tough job outlook, especially for the fresh graduates."

Whether optimistic or not, 46 percent of our respondents said they were contemplating mergers and acquisitions versus 54 percent who said they were not. (See chart, bottom left.) The fact that nearly half of CEOs are looking at M & A seems significant. "We are actively looking at multiple acquisition opportunities and have submitted one letter of intent that would double our size," said Richard A. Smith, CEO of Eschelon Telecom in Minneapolis. "Now is a great time to purchase low-priced assets in telecommunications."

Some small company CEOs see bulking up as a way to allow them to compete against bigger international companies. "Small to medium-sized companies must include M & A opportunities in their strategic planning," said Michael A. Zeher, president of Pharmaceutical Formulations, a $75-million-a-year company located in Edison, N.J. "Their larger competitors will stymie them if they do not increase their leverage in the market."

Bonus Question

Do you contemplate making any mergers or acquisitions in 2004 to expand
your business?

NO     54%
YES    46%

Note: Table made from pie chart.