CEO Economic Confidence Still Buoyant According to TEC International; Rebound Expected From Slow Second Quarter Support For President Bush Remains Strong.

SAN DIEGO -- Chief executives remain confident in the state of the economy, concerned about health care costs and supportive of President Bush, according to a quarterly survey of CEOs released today by TEC International, the world's largest membership of chief executives.

More than 1,450 CEOs of small to mid-size businesses, the bedrock of the U.S. economy, shared their views on current economic trends, issues affecting business, and the forthcoming presidential election. The small to mid-sized business sector creates 75 percent of all new jobs and generates 50 percent of all national revenue.

The TEC Confidence Index fell slightly this quarter to 110.4 from 111.9 in the prior quarter, but still remains higher than this time last year. The slight decline was due to less favorable assessments of current conditions in the overall economy. All other components, including expected revenue and profitability and plans to hire and invest, were largely unchanged from Q2 2004.

"During the past year, firms have gradually lowered expectations about the pace of future economic growth," said Richard Curtin, Ph.D., director of consumer surveys at the University of Michigan. "Nonetheless, most firms expect the economy to rebound from the second quarter slowdown."

"The resilience of firms in the face of uncertainties ranging from the potential impact of the election on tax and healthcare policies, the recent surge in energy prices, the war in Iraq, and threats of domestic terrorism has been remarkable."

The Economy

Economic Conditions Better than Q3 2003; Increased Profits, Revenues Expected

--Sixty-five percent of CEOs stated that current economic conditions are better than they were last year.

--Fifty-four percent feel that the economy will be better one year from now, while nearly 40 percent said that the economy will be about the same in Q3 2005.

--Over the next 12 months, 83 percent of CEOs expect increased sales revenues, 71 percent expect increased profitability and 56 percent will increase fixed investments.

Job Creation

CEOs Plan to Hire, Site Economic Uncertainty as Job Creation Inhibitor 

--Sixty percent of CEOs said they plan to continue increasing their total number of employees, while only seven percent will downsize their payrolls.

--Forty percent plan to increase employee numbers steadily over the next 12 months, although an additional 10 percent will complete a majority of their planned hiring in each of the following; Q4 2004, and Q1 and Q2 2005.

--Uncertainty about the strength of the economy is listed by more than a third of CEOs as the main impediment to faster job creation, although increased productivity, offshoring and a lack of qualified candidates were also listed.

Price Increases

CEOs Divided; Half to Increase Prices, Half to Keep Prices the Same

--Nearly 50 percent of chief executives plan to keep prices for their product or service the same over the next year, although 46 percent expressed plans to increase prices.

--About one-quarter of CEOs raised prices earlier this year, and 34 percent will increase prices in either Q4 2004 or Q1 2005.

Major Business Concerns

Employee Health Care, Increasing Costs, Staffing and Hiring are Major Concerns

--Forty percent of CEOs listed the increased cost of employee health care as having a significant impact on the business/profitability.

--Twenty-three percent cited the increased cost of raw materials, including steel and concrete, as having the most significant impact, and 11 percent listed workers' compensation and energy costs.

--Chief executives were divided when asked about the most significant business issue they currently face. Between 20 and 23 percent listed each of the following: staffing and hiring issues, the cost of business (raw materials, health care, etc.) and financial issues (capital, cash flow).

The Election

    CEOs Continue to Support Bush, Overwhelmingly Prefer Incumbent's
Stance on Issues Relating to Small and Mid-sized Businesses

    --  The economy again tops the list as the number-one election
        issue, up to 40 percent from its lowest showing this year of
        29 percent in Q2 2004. Both Q2 and Q3 results are down from
        the 70 percent who listed it as the most important issue in
        March of this year.

    --  Iraq is listed as the second-most important election issue at
        29 percent, down significantly from the 54 percent who listed
        it as most important in Q2 of this year.

    --  The number of CEOs who listed terrorism as the number-one
        issue has grown significantly, from less than 10 percent to 22
        percent.

    --  Chief executives continue to demonstrate their support for
        President Bush's re-election bid. For the past year, more than
        70 percent of CEOs have expressed plans to vote for Bush.

    --  Twenty-two percent of executives surveyed will vote for Kerry.

    --  When asked about the candidates' stance on specific issues, a
        majority of CEOs believe Bush's approach is better for small
        and mid-sized businesses, although between 10 and 25 percent
        are undecided on each of the issues listed.

            --  Interest rates - 70 percent Bush; nine percent Kerry;
                20 percent undecided

            --  Homeland security - 71 percent Bush; 13 percent Kerry;
                15 percent undecided

            --  Health care costs - 57 percent Bush; 18 percent Kerry;
                23 percent undecided

            --  Taxes - 78 percent Bush; 12 percent Kerry; 10 percent
                undecided

            --  Overall economic plan - 70 percent Bush; 16 percent
                Kerry; 14 percent undecided

            --  Global corporate competitiveness - 62 percent Bush; 18
                percent Kerry; 19 percent undecided
Q2     Q3     Q4     Q1     Q2     Q3
                              2003   2003   2003   2004   2004   2004

TEC Confidence Index          100.0  108.7  115.6  113.9  111.9  110.4

Components

Current Economic Conditions   103    138    167    170    171    159

Expected Economic Conditions  162    166    179    167    150    147

Expected Change Employment    141    149    157    156    154    153

Planned Fixed Investment      132    143    145    144    148    148

Expected Revenue Growth       168    177    179    179    177    179

Expected Profit Growth        155    163    168    165    163    165

NOTE: All component questions 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 Q2 2003 survey.

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 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 Q3 2004 TEC Confidence Index is a compilation of responses from more than 1,450 CEOs of small- to mid-sized companies, surveyed Aug. 30 - Sept. 6, 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 conducts the TEC Confidence Index quarterly.

ABOUT TEC INTERNATIONAL

TEC International, the world's largest membership of chief executives, 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 10,000 business leaders. TEC-member companies grow, on average, at a rate of 2.5 times faster than they did prior to joining. For more information, visit www.teconline.com or call 800-274-2367.