CEOs reported an improved economy and brighter prospects for their own firms despite recent cutbacks in federal spending, in the Q1 2013 Vistage CEO Confidence Index. The Confidence Index was 96.6 in the 1st quarter 2013 survey, up from 87.0 in the prior quarter and the highest level since last year’s 105.1. The underlying strength in the economy has begun to shift the attention of CEOs from uncertainty about federal policies to the more traditional concerns of small firms centered on revenue growth, controlling costs, and staffing.

The recent sequester will be a drag on economic growth, with one-in-six firms anticipating that the cutbacks in federal spending will adversely affect their own business. Importantly, few CEOs expect any resolution to the basic fiscal issues facing the country. Eight-in-ten firms expected continued uncertainty about federal policies during the year ahead. Although firms are learning how to cope with heightened uncertainty, it is always more easily handled in an expanding economy than in an economy verging on stagnation. Overall, confidence and GDP growth has moved sideways during the past few years, with the temporary variations reflecting the repeated bouts of fiscal crises and resolutions.

Economic Growth Improves. Over the past six months the proportion of CEOs that reported an improved pace of economic growth has nearly doubled. In the 1st quarter 2013 survey, 49% reported improved economic conditions, up from just 27% in the 2nd quarter of 2012. Firms also held more favorable expectations for economic growth during the year ahead. Among all firms, 36% anticipated continued improvements in the national economy in the 1st quarter, up from 26% in the prior quarter. Importantly, CEOs can be described as cautiously optimistic since their judgments about both the current economic performance and the year-ahead outlook for the economy are still below the levels recorded a year ago.

Improved Hiring Plans. Net hiring plans, after falling in the prior three quarters, posted a solid gain.
Among all firms, 52% planned additions to their payrolls in the 1st quarter, up from 45% in the prior quarter, and the highest level since last year’s 57%. Just 8% of CEOs anticipated reducing their staffs during the year ahead. It is, however, a significant challenge for firms to find, hire, and train appropriate staff.

Three-fourths of all CEOs said it was a difficult task to find qualified employees, and one-in-five firms said this challenge ranked as the most important issue now facing their firms. Federal programs like the Workforce Investment Act to bolster job skills helped just one-in-five firms, with the balance nearly evenly split between those that never utilized the program and those who were unaware of its existence.

Investment Plans Strengthen. More firms planned to invest in new plant and equipment, with the percent that planned to increase investment spending rising to 40% in the 1st quarter 2013 survey, up from 35% in the prior quarter and the highest since 45% was recorded in last year’s 1st quarter survey. An expanding economy as well as improved prospects for their own businesses meant that just 12% of all CEOs expected to reduce their investment spending in the year ahead, down from last quarter’s 20%. Economic uncertainty still clouds the horizon, but the threat of disruptive economic policies has greatly diminished.

Stable Revenues and Profits. Two-thirds of all firms expected growth in their firm’s revenues in 2013 compared with 2012. While only marginally above the levels recorded in the prior three quarters, it remained somewhat below last year’s 1st quarter survey when three-in-four anticipated revenue growth. Importantly, nearly six-in-ten firms anticipated that the prices they received for their products or services would not increase during the year ahead. Profits were expected to increase by 53% of all firms, between last quarter’s 49% and last year’s 60%. The lack of pricing power as well as competition was telling as one-in-four firms reported that managing costs was the biggest challenge they faced in the year ahead, and another one-in-four said that maintaining and adding to their customer base was their biggest challenge.

about the Vistage CEO Confidence Index
The Vistage CEO Confidence Index, established in 2003, is a quarterly survey of small- to mid-sized business CEOs about the U.S. economy. The Q1 2013 Vistage CEOConfidence Index includes responses from 1,546 U.S. CEOs, surveyed between March 11 and March 20, 2013, with a margin of error of 1.6 percentage points. Since its establishment in 2003, the Index has proven to be a reliable harbinger for changes inGDP and Employment, two to three quarters hence.