Recession Watch: CEO Roundtable

The CEO Roundtable offers a good counterpoint to economists’ expectations.

Bullish investors should be looking for signs of moderately paced slowing of the economy, consistent with hitting the Glide Path.  What do the CEO’s see?

The Economy

While the headline number is a decline from 98.6 to 82.4, anything over 50 is a prediction of expansion.  The forecast for 2006 is for 3.0% growth, only slightly below trend.

Employment

Employment is balanced between increasing and decreasing.  Actually, we should be looking for a small decline in jobs added, since the unemployment rate, below 5%, is probably at an unsustainable level.

Capital Spending

Capital spending is projected to increase by 39% of respondents and decrease by 11%.  This is an important figure, since economic projections anticipate corporate spending picking up a probable decline in consumer spending.  This decline in projected growth might disappoint some observers.

Inflation

Companies are seeing increased costs and many are absorbing the impacts.  This is good news for core inflation, and profit growth has been so great that some impact there should be expected.

Conclusion

Overall, the report seems consistent with the forecasts of economists — so far.

Some will probably focus on the direction of changes and see this as negative for the economy, but we recommend a focus on what is normal growth for the current situation, the end or near-end of a Fed tightening cycle.