Leaders show first signs of employment optimism - CEO Confidence Index

Chief Executive, The, Dec, 2003

Even as CEOs have slowly regained confidence this year following the Iraq war, recession and corporate scandals, they have sent clear signals that they weren't in any hurry to start expanding or rebuilding their work forces.

Now that seems to be changing. Overall CEO Confidence soared 7.7 points in November to 141.6, some 40 percent higher than when we started polling our readers via email in October 2001. (See chart, left.) More importantly for the unemployed, the Employment Confidence Index, which is one piece of the broader indicator, rose even more abruptly, by 12.5 points, to 128.4. (See chart, center.) That is the highest it's been in a year.

In a pair of bonus questions, we asked our readers first whether they planned to increase their workforces in 2004. Significantly, almost 45 percent of our 305 respondents said they intended to do just that versus 10 percent who said they intended to cut. (See chart, right.) So more than four times as many CEOs and C-Level readers are going to hire than are going to fire in the New Year. (The other 45 percent said they would hold even.)

Because this sample of readers Skews toward smaller and medium-sized businesses, the implication is that this tier of companies could once again become a job engine. Larger companies have traditionally been net shedders of jobs.

A second bonus question asked to what extent these readers were outsourcing business processes or Information Technology functions to other countries. The anecdotal responses were overwhelmingly negative, another sharp difference from what the largest companies are doing. "We don't outsource," one respondent said. "We believe that it's the responsibility of management to be creative in job creation and long-term stability wherever we operate our business."

"No, I am not planning to outsource IT," said John Rinaldi, president of Arquest, a $200 million a year maker of private-label diapers based in Cranbury, N.J. "We are planning upgrades and I can be provided with competitive costs domestically. It is always my intention to do everything possible to keep domestic suppliers."

Since this segment of CEOs is more committed to maintaining employment in the United States than the CEOs of much larger companies, there appears to be a more direct connection between their confidence and overall employment levels.

For the first time, we tracked CEO Employment Confidence against the unemployment rate. (See chart, center.) We reversed the scale so that 6 percent unemployment shows up as 94 percent employment. The results seem clear: two months after CEO Confidence bottomed out in April, employment also revived. The rate of increase in CEO Confidence suggests that further employment gains are at hand.

In short, CEOs may be getting confident enough that tangible gains in employment will be made in 2004.

Employment Confidence Chart

The decline and rise of CEO Employment
Confidence ahs foreshadowed a similar
shift in the employment rate this year.

Employment                   %
Confidence Index    Employment

130                       94.5
125                       94.4
120                       94.3
115                       94.2
110                       94.1
105                       94.0
100                       93.9
 95                       93.8
 90                       93.7
 85                       93.6
 80                       93.5

Employment Plans

In 2004, what are your
expectations about employment?

I plan to hold
employment at
current levels.         44.93%
I plan to
increase
employment.             44.92%
I plan to reduce the
number of employees.    10.16%