CEOs Here Upbeat About Economy

November 15, 2002
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Business executives around the region are feeling more optimistic about the future than they were a year ago and decidedly better about the economy than their counterparts at the nation’s largest corporations.

More than two-thirds of the local executives surveyed in recent weeks responded that they felt “somewhat better” about their firm’s prospects for 2003 than they did a year ago. Another 6 percent anticipate a “much better” year in 2003.

The survey a year ago found 51 percent of the respondents expecting a “somewhat” or “much” better year in 2002 than 2001.

The results of the survey indicate that local business executives believe the economic downturn has leveled off, that they have “weathered the storm,” and their companies are well positioned for a recovery, said Chris Montague, managing partner at the Grand Rapids office of Plante & Moran.

Concerns persist about how fast and how far the economy will recover, as well as about rising costs in some areas, most notably employee health benefits and raw materials. Still, the majority of the 101 executives responding to the survey “are looking for better days in the very near future,” Montague said.

“There is some sense that things will continue to improve some,” he said. “They think we have or are quickly approaching the end of the down cycle.”

In responding to the economic downturn, nearly two-thirds of the respondents reported that their company experienced a restructuring in 2002. Results show business leaders have positioned the companies for an economic recovery, Montague said.

“Most businesses today feel they have really positioned themselves to perform at the current level of activity,” he said. “They are where they need to be.”

Plante & Moran tabulated the results of the telephone survey, conducted in late October and early November by the Grand Valley State University School of Communications in collaboration with the Grand Rapids Business Journal. The survey sought opinions on the economy from CEOs, CFOs and top executives at companies in Grand Rapids, Holland, Zeeland and Muskegon.

The responding companies have an average annual sales volume of $40 million. Roughly 75 percent of the respondents were manufacturers. The rest were in the professional services sector.

The improved view of the local economy from year-ago results stems from the combination of data showing business conditions in West Michigan are improving and an optimistic view that the national economic downturn of the past 18 months has to end eventually, said Alex Nesterenko, director of the GVSU School of Communications.

“It’s just human nature to say ‘It’s got to start getting better,’ but they are seeing some actual signs things are actually getting better,” Nesterenko said.

The signs locally are apparently different than what CEOs nationwide are seeing.

A survey released last week by The Business Roundtable, a 150-member association of leading chief executives across the country whose corporations employ more than 10 million people and generate annual sales of $3.7 trillion, found few CEOs expecting robust growth in 2003 and many worried about what they saw as “fragile” economic conditions.

More than two-thirds said they expected a GDP of less than 2 percent for 2003. The GDP has averaged 3.2 percent annually for the past decade.

Fifty-seven percent of respondents to The Business Roundtable’s survey planned to maintain reduced levels of capital spending next year. Another 24 percent expect a decline in capital expenditures, a key factor in the prospects for the office furniture industry based in West Michigan that continues to cope with a terrible down cycle in sales that began nearly two years ago.

Sixty percent of the respondents in the national survey anticipate workforce reductions averaging 3.8 percent, while just 11 percent expect to increase employment by an average of 3 percent.

With economic growth slowing in the third quarter and predicted to come in at about the 1 percent range for the fourth quarter, the survey’s results help to heighten the critical need for an economic-stimulus package from Washington that boosts consumer confidence and business spending, said John Dillon, chairman of The Business Roundtable and CEO of International Paper Co.

“Our nation’s economic recovery has not been strong or sustained, and the BRT’s survey shows that CEOs do not expect the situation will improve significantly during 2003,” Dillon said. “There is always a propensity to say that things are going to better in six months and we certainly are seeing some of that now, as we did earlier this year. But I would say what this data tells us is the weakness in the economy that we’re sensing right now is real and that the leaders of U.S. businesses recognize it. And they see it in the businesses, and we all want to enter into the debate and to focus on what can be done about it, and what can get this economy back growing closer to its potential.”

On the upside, the organization’s survey found 71 percent of the responding CEOs expecting higher sales in 2003 over 2002, although the average expected increase is only 5 percent, which will curtail profitability and impede employment growth, Dillon said.

Locally, results of the GVSU survey found 41 percent of the responding businesses not meeting expectations for 2002, with 35 percent meeting them. Twenty-one percent of the executives surveyed indicated their companies were exceeding expectations for the year.

Showing the region’s economic diversity, some local executives even said that things have never been better.

One executive said his business is “booming.” Another offered: “I hope next year is as good as this year.”

Forty-seven percent said they planned “about the same” level of capital expenditures in 2003 as they did in 2002. Twenty-nine percent planned “somewhat higher” capital spending levels and 12 percent expected “much higher” capital spending.

The responses are similar to those in last year’s survey heading into 2002, which found 49 percent of the respondents maintaining capital spending, 25 percent expecting “somewhat higher” levels, and 6 percent anticipating “much higher” spending.           

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