US CEOs unready to start hiring

"To the degree that any of these guys say they're hiring or not hiring, market participants are going to be paying very close attention."

Drew Matus, senior economist at Lehman Brothers Inc

A majority of leaders of the largest US companies aren't planning to step up hiring as demand rises and the economy accelerates next year, a survey of the 190-member Business Council found.

About 55 percent of the chief executives said they expect the economy to grow by more than 3 percent next year, beating the 2.8 percent economists project for this year and last year's 2.4 percent. Half predicted the jobless rate would decline next year.

Only 14 percent said they would pick up their pace of hiring, and 63 percent planned to add about the same number of workers as this year.

The "most surprising" finding was the lack of a pickup in hiring even as executives forecast an acceleration of growth and a decline in the jobless rate, said Franklin Raines, vice chairman of the council, who is also chief executive of Fannie Mae, the biggest purchaser of US mortgages. "This raises the conundrum as to how all of these things will happen at once."

While production has picked up in recent months, boosting economic growth, it may not be sustainable without a rebound in employment, Federal Reserve officials and some economists say.

Payrolls have fallen by 1.34 million since the recession ended in November 2001, and companies have been slower to hire than in past recoveries.

"There's an expectation of a good but not a super economy coming into this last quarter and in 2004, with expectations that productivity gains will continue, and that will be a significant driver of profits for these companies," Raines said.

"At some point, we have to have other parts of the economy kick in" other than the consumer, the Fannie Mae chief said.

"The potential weakness is we don't see an increase in investment at some point over the next five quarters," he said.

The CEOs' growth projections were more modest than the most recent estimates of economists. US GDP may expand at a 3.8 percent rate in each of the first three quarters next year after 3.8 percent in the current three months, based on the median of 58 estimates in a Bloomberg News survey of economists taken Sept. 26 to Oct. 3. The median estimate for growth this year was 2.8 percent, the survey found.

Fueling their growth forecast, the chief executives credited lower taxes, increased business and consumer confidence, higher federal spending, the decline of the dollar, and lower long-term interest rates. They said they expect only a "modest" tightening of monetary policy next year.

Almost two-thirds of the CEOs projected that their sales growth and profit margins would accelerate next year, even with the outlook for pricing power remaining unchanged from this year, the survey found. About 57 percent of the respondents expected to charge the same amount for their goods and services next year.

About half said their capital spending plans would remain unchanged, with about a third expecting to increase purchases.

The survey results were reported before two days of Business Council meetings by more than 80 leaders of Fortune 500 companies at a resort in White Sulphur Springs, West Virginia. Members of the invitation-only group are set to discuss spending plans, prices, employment and other economic issues, as well as China and emerging technolo-gies. While some of the topics are covered in closed-door meetings, much of the conversation takes place informally, on the golf courses or nature trails.

The CEO summit comes after US businesses added workers in September for the first time in eight months, the Labor Department reported yesterday, sending stocks higher and bonds lower. Some economists hold that rising corporate profits may put companies in position to add workers in coming months.

"To the degree that any of these guys say they're hiring or not hiring, market participants are going to be paying very close attention," said Drew Matus, senior economist at Lehman Brothers Inc in New York, before the survey was released. "A rebound in CEO confidence is going to have to be one of the drivers to keep this recovery going."

At the group's last get-together, in Boca Raton, Florida, in February, much of the discussion centered on how a war with Iraq would affect business plans. The CEOs then predicted the economy would expand at about the same pace as last year and that federal tax cuts then proposed by the White House would spur growth.

In today's survey, about 82 percent of the business leaders said global issues such as the war and worries about terrorism and the SARS outbreak negatively affected their business, though 59 percent characterized the effect as "moderate." Eighty-one percent said "global concerns" wouldn't affect their business plans next year.

In a series of special questions about the federal deficit, more than 60 percent said the nation's mounting debt would either crowd out private investment or lead to higher long-term interest rates or both.