The mood is a bit blue.

CEOS ARE FEELING less confident as they head toward the finish of a charged presidential election race amid lackluster job growth reports, falling sales, still-sky-high oil prices and continued terrorist alerts. The benchmark CEO Confidence Index fell in September for the second month in a row, this time by a full 10 points, to 159.7, representing the largest drop since February 2003 (see chart, left). Current Confidence sank as well, by a hefty 13.4 points.

Looking ahead, business leaders aren't expecting things to improve any time soon. Future Confidence fell 7.7 points, to 150.3, the lowest it's been since March 2004. Nearly three-quarters of our 324 respondents said they planned to grow their businesses gradually, while 22.2 percent reported no plans for growth.

Employment Confidence shrank by 11.6 points this month, with fewer CEOs planning to hire and a greater percentage anticipating layoffs. Interestingly, while the July survey found that health care costs rank as the highest priority among CEOs, when asked to rank the factors restraining U.S. hiring, CEOs didn't put health care costs high on the list. Instead, 22 percent of CEOs blamed a negative sales outlook for the modest pace of U.S. hiring, with "expected profitability" of the company taking second place at 17 percent. Only 10 percent blamed health care as the driving factor. And a paltry 5 percent cited outsourcing, as represented by relative costs of domestic versus international labor (see chart, right).

The fact that health care and the relative costs of domestic labor ranked so low on the list of factors suggests that political pundits don't truly understand what impacts a CEO's decision to hire. "Profitability--actual or planned--has to be the overwhelming factor in planning of new employment," wrote Jeff Stephenson, CEO of Bennett & Curran, a wholesale book distributor in Englewood. Colo. "While there are a number of factors and criteria in judging the value of a company or industry, isn't profitability the 'real' value?"

But offshoring clearly plays at least an indirect role as CEOs report they've had to rely on overseas manufacturers to boost profit margins. "The huge payroll taxes, higher insurance costs, government regulations and the cost of doing business only forces companies like ours to import components from offshore facilities," wrote Jerry Grunor, president of Dana Point. Calif.-based Global Communications, which works with 20 manufacturers in Taiwan, China and Hong Kong.

CEOs also cited high energy prices as hurting their overall confidence. "Oil prices need to come down to support further growth in the economy," wrote Jim Moynihan, CEO of Heery International, a design, engineering and construction company in Atlanta.

While election uncertainty ranked last on the list of hiring-related factors, several CEOs cited concern over ballooning federal deficits, calling upon whomever wins the White House to address it. "If the government does not get its spending under control and continues to amass huge budget and trade deficits, we are headed for disaster." Stephenson wrote. "It's not a question of if--only when."

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