CEOs Expect Slower Economic Growth; Reliable CEO Index at Lowest Level since 2003; CEOs Support Social Security and Health Care Reform.

SAN DIEGO -- Small and mid-sized businesses justify hiring even though they see the economy leveling out, according to today's release of the TEC Confidence Index, a reliable quarterly survey of more than 2,000 CEOs conducted by TEC International, the world's largest organization of chief executives.

The Q1 2005 TEC Confidence Index eased down to 109.8 in the first quarter of 2005, from 111.8 in the prior quarter. This slight drop was due mainly to expected slowing in the pace of economic growth. Although CEOs are showing some concern for the economy this year, they are still confident and anticipate revenue and profitability increases.

According to Richard Curtin, Ph.D., director of consumer surveys at the University of Michigan, and consultant for the TEC Confidence Index: "Most firms expect the economy to make a successful transition from the more rapid rate of recovery in 2004 to a slower, but more sustainable and still favorable pace of expansion during the year ahead. That the economy is expected to remain strong is indicated by nine-in-ten firms that plan to increase or maintain the level of their fixed investment expenditures, and nearly two-thirds plan to hire more workers in the year ahead."

For nearly two years, the TEC Confidence Index has forecasted annual changes in the economy, including job creation and price increases. The quarterly survey continues to serve as an accurate snapshot of the economic landscape.

Economic Conditions -- Expansion Expected

--Economic Conditions Improve -- Nearly two-thirds of CEOs think economic conditions are better than a year ago, while only 5 percent feel conditions are worse than 12 months ago.

--More CEOs Expect Economic Growth to Level Out -- Regarding expectations of economic conditions for the balance of 2005, 50 percent expect conditions to be better than today. Last quarter 58 percent expected conditions to be better. Forty-four percent expect economic conditions to remain the same over the next 12 months.

CEOs' Hiring Plans Coincide with Recent Employment Statistics

--Economic Growth Justifies Hiring -- Nearly two-thirds of firms expect the pace of economic growth during 2005 will continue to be strong enough to justify the expansion of their workforce. Finding qualified candidates continues to be the top area of concern, while health care costs were viewed as pivotal to future hiring plans.

--Hiring Increases -- Similar to last quarter, 63 percent of all CEOs will increase their total number of employees in the next 12 months, while only five percent will decrease their payrolls.

--Hiring Should Remain Stable -- Some CEOs plan to increase hiring in Q2 2005. Most plan to hire steadily throughout the year.

--Street Smarts vs. Book Smarts -- CEOs look for both book smarts and street smarts when hiring management team members. Ninety-four percent of CEOs think street smarts are important when hiring management, while only one percent said book smarts was the only thing they look for.

Investments, Revenue and Profits

Investment Spending

--Although the pace of investment increases cooled slightly after last year's rapid expansion, most of the shift represented firms who reported that they were more likely to hold spending at those new higher levels rather than to increase spending even more during the year ahead.

--Fifty-four percent are planning to increase their overall investment spending. In contrast, nine percent are planning to decrease spending.

Inflation Not an Issue

--Higher total revenues were expected by 83 percent of all CEOs in this survey. The anticipated increases were due to expected sales growth as well as higher prices, 46 percent of all firms expected to raise the prices of their products or services this year similar to last quarter's findings. Although higher prices were needed to offset higher costs for energy and raw materials, prices were not expected to be increased to the full extent of the higher costs. As a result, the proportion of firms that expected higher profits slipped slightly in the first quarter 2005 survey from the prior quarter.

--Higher profits are anticipated by nearly 70 percent during 2005.

Topical Issues

In addition to measuring economic confidence, the TEC Confidence Index measures CEOs' opinions about issues that impact business.

Modifications to Health Care Policies

--Just over half of all firms were receptive to new policies that would provide consolidated group health care rates for small firms and favored an employee tax credit to cover health care costs.

--Thirty percent believe implementing caps on health care insurance costs would have the greatest positive impact.

Political Policy -- CEOs Support Social Security and Tort Reform

--Nearly three-quarters of CEOs said they support personal accounts for Social Security, but still, 44 percent aren't sure how it would impact their business. CEOs favor Social Security reform even though 40 percent of CEOs believe record-keeping requirements will increase. More than one-quarter believe Social Security will be more secure if the Bush administration enacts this reform.

--Nearly two-thirds of CEOs expect the proposed tort reform to have a positive impact on their business.

Rising Interest Rates

--Continued small increases in interest rates were not expected to have an impact on their business plans by two-thirds of all firms, with most of the balance stating that they would need to increase prices, decrease costs, or reduce debt in 2005.

Plans for 2005 Mergers and Acquisitions

--When asked about the potential future directions that their businesses might take, one-third of all firms reported in early 2005 that they were involved in some way with merging or strategic partnerships with other firms. Seventeen percent of firms are looking to acquire companies, 12 percent are expanding partnerships.

Q4    Q1    Q2    Q3    Q4    Q1
                                    2003  2004  2004  2004  2004  2005
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Current Economic Conditions         167   170   171   159   160   158
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Expected Economic Conditions        179   167   150   147   151   144
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Expected Change in Employment       157   156   154   153   159   158
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Planned Fixed Investment            145   144   148   148   149   145
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Expected Revenue Growth             179   179   178   179   179   179
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Expected Profit Growth              168   165   163   165   165   161
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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 2005 TEC Confidence Index is a compilation of responses from nearly 2,100 CEOs of small- to mid-sized companies, surveyed February 21-25, 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 organization 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 of 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.