CEO Confidence Index: optimism soars to new levels.

THE MOOD IS BRIGHTENING. Our latest CEO Confidence Index shows that confidence has reached its highest level since we launched the Index in October 2002. Based on responses from 288 readers, the Index climbed 14.5 points, to 172.8. It was the second-largest monthly gain on record, after the shift in sentiment from December 2003 to January 2004. (See chart, lower left.) If confidence continues to rise at this rate, it could soon double the initial benchmark level of 100.

One tentative note came in response to our bonus question on marketing. Only 18 percent of respondents said they were "very satisfied" with their marketing organizations, while 35 percent said their marketing departments needed improvement. "Slow economic growth is the inadequate marketing executive's hiding place," said Bart Hill, president and CEO of San Joaquin Bank in Bakersfield, Calif. "Only solid market-share data can provide the perspective necessary to measure sales success."

But on all other fronts, CEOs this month seemed decidedly upbeat. All the components of the Confidence Index also rose strongly. Future Confidence, which has been a laggard, increased roughly 10 points, to 166, and confidence in current business conditions raced ahead 20.7 points, to 183.0.

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Of particular interest was the Employment Confidence Index, which gained 20 points, to 176.1. This is a bullish showing because attitudes toward hiring have lagged behind the broader indicators. (For complete results, go to www.chiefexecutive.net.)

For all of the optimism, some CEOs are keeping a wary eye on raw material and crude oil costs, which have been rising. "Business conditions continue to improve," wrote Ed Mullaney, president of the Rocky Mountain Machine Shop in Salt Lake City. "But we are seeing the early signs of some inflation with increasing steel prices. We still are not able to pass those increases on to our customers with any hope of retaining their business."

Other manufacturers are worried about international competition, while one small-company co-founder, who chose to remain anonymous, is fretting about outsourcing. "With the huge amount of outsourcing now occurring, the demographics that fuel our growth are being systematically short-circuited," he wrote. So even though confidence is up, the business world is still a tough place in which to compete.

How do you rate the performance of your marketing organization?

Dissatisfied        1%
Very Satisfied     18%
Satisfied          46%
Needs improvement  35%

Note: Table made from pie chart.