How low can confidence go? (CEO Confidence Index).

CEO confidence fell sharply in our most recent survey, but the war in Iraq wasn't necessarily the biggest cause of dismay.

The overall CEO Confidence Index fell to a low of 89.4, down from 100 in October, when we commenced our email surveys. Not surprisingly, Current Confidence is even lower, at 78.6. The Future Confidence Index, or expectations of business conditions one quarter from now, also declined slightly, but remained at a relatively healthy 96.6. (For full results, visit www.chiefexecutive.net.) The wide gap between Current and Future Confidence reflects the possibility that today's conditions may not last more than a few months.

This month, we asked a supplemental question about how the war in Iraq has affected the businesses of our respondents. Here are the results:

Positively--5.31 percent

Negatively -45.31 percent

No effect--49.38 percent

When the survey was taken, and as of this writing, the battle for Baghdad was still raging, so sentiment could shift dramatically. But at least for now, the mood is grim. "This is probably the most difficult business climate I have experienced in my 27 year career," said one CEO.

Several CEOs said the most crucial economic decisions will be those about how the Americans decide to rebuild Iraq and conduct international economic policies in the aftermath of war. As another CEO put it, the effect could be "negative due to the U.S. trying to reconcile with the world community by catering to foreign interests through the further opening of our borders, increasing imports, and pumping additional quantities of our wealth into the economies of those who treat us with contempt." He believes the United States should take a tough approach toward France in particular.

Others sharply disagreed, as evidenced by this response: "The war needs to be resolved with international support."

Many CEOs said they would like to see the Bush Administration tackle domestic economic worries as aggressively as it pursued Saddam Hussein. And one CEO said the war was just a sideshow from the real challenges. "My biggest worry is the U.S. losing manufacturing jobs to China, whose work force is bigger than those of Japan, Taiwan, the U.S. and South Korea combined," this person wrote. "Meanwhile, U.S. high-tech jobs are moving to India. How can you grow the economy without job growth? Plus, health costs and legal/insurance expenses are skyrocketing. War is a short term concern." Clearly, American CEOs have a lot on their minds.

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