Confidence surges, but problems persist. (CEO Confidence Index).

The gut-wrenching decline in CEO confidence that we have witnessed in recent months is over--and over with a bang. Our CEO Confidence Index soared 20.4 points in May--the most abrupt shift this indicator has experienced--to 109.8. That places confidence at a higher level than last October, when we began polling our CEO readers via email.

Confidence in future business conditions one quarter ahead is even higher, at 118.6, while Current Confidence is still slightly below 100, at 97.0. Those are both ingredients of the broader Index (see chart above).

So the obvious question is, when will CEOs start investing and hiring again in a significant way? To shed light on that, we asked a supplemental question: "Now that the major operations of the Iraqi conflict are over, when will your company return to typical growth rates?"

As shown in the chart on the right, a third of respondents said their businesses were already at typical growth rates. Congratulations, folks, because the rest of our leaders think it's going to take awhile. The largest percentage of them (29 percent) believe it will take six to 12 months.

Many of our more than 600 respondents poured in comments this month. One reader from Elkhart, Ind., offered a snapshot of the area, which we have nicknamed the "Elkhart Indicator." "The Elkhart area usually gets hit with a downturn six to nine months earlier than the rest of the country because of its manufacturing base," our reader wrote, mentioning the area's production of recreational vehicles. "This area also rebounds from a downturn six to nine months earlier than the rest of the country." How is business now? "Things have been up for the past three to six months," he writes. As goes Elkhart, so goes America?

But CEOs are still worried about many things, and they want President Bush to be part of the solution. "Stronger leadership at the presidential level is necessary to refocus the mindset of the investment community," a respondent in the construction equipment industry wrote. Until the markets start moving up more strongly, this reader believes consumers won't increase spending: "The president did a great job with his salesmanship on the war in Iraq. Now he needs to mirror those skills and actions in a sound plan to rebuild the economy. But CEOs are divided over whether tax cuts are the way to do that. Some say "yes," but others warn that tax cuts would only damage the economy.

Other industry-specific problems loom. CEOs in health-related areas are worried about Medicare and Medicaid. The commercial airline and aerospace sectors are hurting for obvious reasons. The Severe Acute Respiratory Syndrome outbreak is a major worry for companies with operations in Asia.

Despite the SARS epidemic, however, readers continue to be concerned about the loss of economic activity to Asia. "Over the past 18 months, investment in manufacturing capacity made by U.S. companies has overwhelmingly been made in China, not the United States," said one respondent. "I find it difficult to perceive what would trigger any growth in U.S.-based manufacturing for quite some time to come.

Added another: "We are losing manufacturing in this country at an alarming rate and we must save this part of our economy or we will see a declining standard of living in the future."

So yes, CEO confidence is increasing, but it's not time to break out the champagne--at least not yet.

[GRAPH OMITTED]

Growth Expectations

"When will your company return to typical growth rates?"

MY COMPANY IS AT TYPICAL GROWTH RATES  33.28%
3-6 MONTHS                             16.23%
6-12 MONTHS                            28.85%
12-18 MONTHS                           16.56%
LONGER THAN 18 MONTHS                   5.08%

Note: Table made from bar graph

For more extensive results on CEO Confidence, visit www.chiefexecutive.net.