Confidence climbs higher, but not for Q4 growth.

CEO confidence in the nation's economic recovery continued its steady climb this month, with many top executives beginning to see the proverbial light at the end of the tunnel. Yet most corporate leaders predict fourth quarter numbers will be sluggish, showing only very modest growth. And most are still very concerned about continued unemployment, the deficit and global unrest.

The overall CEO Confidence Index rose to 134.7, a seven-point jump over last month's number--and 35 percent higher than when we first started polling readers in October 2002 (see chart, left). And while Current Confidence has risen steadily over the past four months, the more fickle Future Confidence took a strong leap, rising seven points, compared with last months small dip. [GRAPHIC OMITTED]

Looking at the larger picture of CEO Confidence over the past 11 months, an interesting pattern continues: Since October, CEO Confidence has more or less followed the Dow Jones Industrial Average (see chart, center). While it's difficult to say precisely why, the trend suggests a strong correlation between CEO confidence and market performance. [GRAPHIC OMITTED]

Our bonus question this month asked readers to quantify their forecasts on economic recovery by estimating how quickly the U.S. economy would grow in the fourth quarter of 2003. Respondents expressed their caution: Nearly one half of CEOs, or 46 percent, said the economy would grow a paltry 2 percent or less, and another 39 percent predicted less than 3 percent growth (see chart, right).

"In your view, how fast will the
U.S. economy expand in the
fourth quarter of 2003, on an
annualized basis?"

2% or less   46.18%
3%           39.76%
4%           11.62%
5% or more    2.45%

Note: Table taken from pie chart

In their comments, CEOs were pessimistic on the job front and frustrated over competition with products manufactured overseas. "I see a slow, gradual turnaround in manufacturing," said Lex Reynolds, president of The Reynolds Co., in Greenville, S.C. "However, I see this growth accompanied by very little employment growth. I see continued plant closings and layoffs due to the ever-continuing flood of cheap imports. Unless this administration and Congress do something to level the playing field with these competing emerging economies, the long-term survival of domestic manufacturing jobs will be in jeopardy."

Others expressed worry over a ballooning deficit, and blamed the Bush administration for future repercussions of inflated spending. "It's unfortunate that we have tried to rely on tax cutting," says Joseph N. Hankin, president of Westchester Community College in Valhalla, N.Y. "The previous administration left us in good financial shape and now we have to be concerned about the economy more than before."

Henry Wirz, CEO of the SAFE, Credit Union in Sacramento, worried the deficit would have a negative impact on interest rates and the housing industry "which has been one of the shining stars of the economy." He cautioned against being overly focused on today's numbers at the expense of planning for future economic growth. "An improving economy does nothing for our business unless we lay the ground-work for the road ahead," Wirz said. "Remember, nobody ever built a great company by playing defense."