CEO Economic Confidence Continues Rebound; Major Business Concerns: Avian Flu, Staffing, Health Care Costs.

SAN DIEGO -- Chief executives of small and mid-sized businesses nationwide have increased confidence in a strong economy throughout 2006, according to TEC International's quarterly CEO survey, the TEC Confidence Index. While CEOs anticipate growth, they are still concerned with staffing, health care costs and implications of an avian flu pandemic.

After a two-quarter dip below the 100-point baseline in 2005, CEO confidence in a strong 2006 brought the TEC Confidence Index level up five points over last quarter to 104.2. Negative economic expectations have all but disappeared, dropping from 33 percent six months ago to just 13 percent this quarter. More than 2,100 CEO members of TEC International, the world's largest organization of chief executives, responded to the Q1 survey.

"TEC firms reported that substantial economic gains in the overall economy have already occurred, and that they anticipate continued gains during the year ahead. Nonetheless, firms still expected a slightly slower overall pace of economic growth during 2006 than in 2005," said Richard Curtin, Ph.D., a consultant for the TEC Confidence Index and director of consumer surveys at the University of Michigan.

"TEC firms believe it is the right time to take advantage of growth opportunities, including acquiring existing companies and expanding into new markets, and overall, the data point toward a continuation of economic expansion despite tight labor markets, a higher inflation rate and other cost pressures."

Avian Flu Fears

Looming on CEO's radar screens, but not yet affecting economic confidence, are the business implications of an avian flu pandemic. When asked what impact a pandemic would have, seven in 10 are concerned that their business would be negatively affected. A mere six percent believe their companies would experience a positive impact from such a global event.

Number-One Business Concern

For the last year, CEOs have ranked staffing--defined as hiring and retaining trained, qualified employees--as their number-one business concern. Up five percent over last quarter, 34 percent of respondents listed this as their number-one business concern. In an additional question, 28 percent of CEOs noted staffing as their top business priority for the year, second only to growth opportunities.

Indicating that this issue has been of concern for some time is CEO's response to a question about the amount of time needed to find a qualified candidate for an open position. Sixty percent of respondents said it takes as long now to hire a candidate as it did a year ago, while the other 40 percent say it takes longer now, citing a dwindling force of qualified employees as the main reason for the continued difficulty in hiring.

Hiring

Even as the difficulty in finding qualified employees continues, CEOs still plan to add to the organization's employee roster. Up slightly from the previous quarter, 64 percent of respondents plan to increase their payrolls. CEOs will increase their employee numbers steadily throughout 2006, with no sharp increase in hiring at any one point in the year.

Growth, Revenue and Profits

On par with last quarter's results, 82 percent of CEOs expect increased revenues and 69 percent expect increased profitability over the next 12 months. Nine in 10 plan fixed investments to increase or remain the same.

When asked about the top business priority for the next year, 43 percent cited growth opportunities, to include entering new markets and acquiring new companies, while 13 percent will develop or launch a new product.

Health Care and Governmental Reform

Still plaguing small and mid-sized businesses is the cost of employee health care. About two-thirds of CEOs are sharing higher health care costs with employees, while 15 percent have cut back on the options offered. Only five percent of employers have stopped offering health care to employees.

When asked what policy would have the biggest impact on this issue, chief executives were split, with more advocating for consolidated group rates for small businesses (37 percent) than employee tax credits for contributions (26 percent) and implementing caps on insurance costs (18 percent).

In addition, 41 percent of business leaders noted that governmental health care reform would make U.S. businesses more competitive in the global market.

Continuing Battle Against Energy Costs

As energy costs continue at 2005 highs, CEOs manage increased expenses with two main strategies. Nearly half continue to absorb growing energy costs while the other half pass costs along to customers by increasing product and service prices.

Additional strategies CEOs have adopted include conserving energy (27 percent), outsourcing services (12 percent), and decreasing labor costs (10 percent).

TEC Confidence Index Components

Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006
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Current Economic Conditions       158     136     124     115     134
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Expected Economic Conditions      144     126      91     108     122
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Expected Change in Employment     158     153     154     156     159
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Planned Fixed Investment          145     142     139     139     144
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Expected Revenue Growth           179     173     172     177     178
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Expected Profit Growth            161     158     154     159     160
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ABOUT THE TEC CONFIDENCE INDEX

U.S. small and mid-sized businesses represent the most vital component of the nation's economy. This sector creates 75 percent of all new jobs and generates 50 percent of all national 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 Q1 2006 TEC Confidence Index is a compilation of responses from 2,114 CEOs of small- to mid-sized companies, surveyed Feb. 20-28, with a margin of error of two percentage points. The TEC Confidence Index is the only comprehensive report of their opinions and projections.

ABOUT TEC INTERNATIONAL

TEC International, the world's largest CEO membership organization, enables companies to solve business problems, achieve better results and outperform the competition. Since 1957, only TEC members have benefited from a comprehensive suite of services that includes peer-group sessions, one-to-one executive coaching, experts on a full range of business subjects, a proprietary best practices library, and the collective experience 11,000 business leaders. TEC-member companies grow, on average, at a rate two times faster than they did prior to joining. For more information, visit www.teconline.com or call 800-274-2367.