CEO Confidence in Economy Supports Investment Plans, Price Increases.

Business Editors

SAN DIEGO--(BUSINESS WIRE)--June 7, 2004

Nation's Business Leaders Disclose Opinions on Current Economic

Conditions, Product Price Increases, Business in China and

the War in Iraq 

TEC International, the largest organization for CEO development, today released Q2 results of the TEC Confidence Index. In the quarterly survey, more than 1,100 chief executives of small to mid-sized businesses shared their views on current economic trends and issues affecting business. Survey results indicate that CEOs believe that the current economic situation will support the expansion of their businesses. Results also forecast inflation as a result of planned price increases.

The TEC Confidence Index, which measures economic confidence quarter over quarter, increased by 11.9 percent from the comparable period in 2003. The small declines recorded in Q1 and Q2 of 2004 were due to the expectation that the rate of economic growth would gradually slow as well as a heightened sense of uncertainty due to the war in Iraq and threats of terrorism. However, CEOs expect higher profits, plan to continue hiring, and intend to increase the price of their products over the next year.

"Firms have already begun to take actions based on the favorable economic expectations," said Richard Curtin, Ph.D., TEC Confidence Index consultant and director of surveys of consumers for the University of Michigan. "Firms planned in the second quarter to hire more employees, increase wages, and spend more on investments in new productive capacity. Moreover, they now expect to be able to raise their prices to cover increased costs of labor, material and energy, while still maintaining their current profit margins."

More Than 50 Percent to Increase Prices

Fifty-four percent of surveyed firms expect to increase the prices of their products and services during the next 12 months. Of those who plan to increase prices, around 50 percent say they will do so by the end of 2004.

Q2 2004 Economic Conditions Better than 2003

With regard to current economic conditions, 76 percent of CEOs believe that overall economic conditions in Q2 2004 have improved over the past year, in sharp contrast to the Q2 2003 survey conducted a year ago, in which only one-in-three CEOs identified improved economic conditions. Firms expect the pace of economic growth to be strong enough to justify increased job creation.

Strong Hiring Continues

Sixty percent of responding CEOs plan to increase the number of their employees steadily over the next year. These hiring plans were largely unchanged from the Q1 2004 results. To retain their staff, almost half of the surveyed businesses plan to increase wages. Other employee retention plans include opportunities for professional development, flex-time, and additional benefits.

Hiring, Increased Costs Most Significant Issues

Sixteen percent of surveyed CEOs identified the rising cost of conducting business as their most significant business issue. These rising costs included energy prices, supplies and raw materials, and employee benefits such as workers' compensation and health insurance. More than seven percent of those surveyed listed workers' compensation and healthcare as their number-one business issue. Hiring and retaining quality, trained employees proved to be the second most worrisome issue for the chief executives of small to mid-sized businesses. Eleven percent named employee recruitment and retention as the most significant issue they face.

Iraq Tops Election Concerns

With regard to the upcoming presidential election, 54 percent of chief executives identified the war in Iraq as the most critical election issue, compared to only 11 percent last quarter. This is a dramatic change from Q1 where 70 percent of CEOs felt the economy was the most important election issue. Unchanged in Q2 is the unwavering support for President Bush. More than 70 percent of chief executives would vote for Bush if the election were held today.

One-Quarter Exploring Business in China

Interestingly, 24 percent of CEOs from small to mid-sized businesses are currently exploring business opportunities in China. This includes opening offices in China, offshoring operations and joint ventures with Chinese companies. Joint ventures piqued the most interest in these business leaders, as about eight percent reported exploring the opportunity.

More Than Half Plan To Increase Fixed Investments

Fifty-three percent of all firms surveyed have plans to increase their amount of investment spending in the next 12 months, which reflects the highest level of investment plans in the past year.

Interest Rate Increase Will Have Little Impact

Asked about the effect of a half-point short-term interest rate increase, nearly half of surveyed CEOs responded that such an increase would have no effect on their business, although 41 percent anticipate that the potential increase would have a "mild negative effect."

The TEC Confidence Index is designed to measure the change in CEOs' optimism over time. The survey methodology is based on six component questions, which are scored as the percent giving favorable replies, minus the percent unfavorable, plus 100. The TEC Confidence Index is the sum of the components calculated as a percentage of the level recorded in the Q2 2003 survey.

TEC Confidence Index Component Questions

                                      Q2     Q3     Q4     Q1     Q2
                                     2003   2003   2003   2004   2004

Index Score:                         100.0  108.7  115.6  113.9  111.9

Current Economic Conditions          103    138    167    170    171
Expected Economic Conditions         162    166    179    167    150
Expected Change in Employment        141    149    157    156    154
Planned Fixed Investment             132    143    145    144    148
Planned Revenue Growth               168    177    179    179    177
Expected Profit Growth               155    163    168    165    163

ABOUT THE TEC CONFIDENCE INDEX

U.S. businesses with annual sales between $1 million and $1 billion represent the most vital component of the nation's economy. This small- to mid-sized business sector creates 75 percent of all new jobs and generates 80 percent of revenue. The opinions of these business leaders provide a clear snapshot of current economic, market, and industry trends and demonstrate their plans for growth over the next 12 months. These insights provide a leading indicator for employment, capital expenditure, sales and revenue trends.

The Q2 2004 TEC Confidence Index is a compilation of responses from over 1,100 CEOs of small- to mid-sized companies, surveyed May 24 - May 31, 2004, with a margin of error of three percentage points. The TEC Confidence Index is the only comprehensive report of their opinions and projections. TEC International, the largest leadership organization for chief executives, conducts the TEC Confidence Index quarterly.

ABOUT TEC INTERNATIONAL

Founded in 1957, TEC International provides business leaders with tools to outperform both the competition and their own goals. The comprehensive toolset includes peer-group sessions and one-on-one executive coaching for the sharing of best practices and opportunities to seek confidential help in critical situations.

TEC's professional development model also includes access to world-class business experts, and a global community of more than 9,000 members. TEC member companies have revenues between $1 million and $1 billion, and combined have a total of more than $280 billion in annual sales and more than 1.1 million employees. They outperform the Fortune 500, the S&P 500 and the 14 million companies in the ARC Analytics database. In addition, TEC member companies grow, on average, 2.5 times faster than they did prior to joining TEC.