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Top CEOs Signal Dim Outlook

September 19, 2006|From Reuters

High energy prices and interest rates have dimmed U.S. chief executives' view of the economy, according to a quarterly survey released Monday by the Business Roundtable.

The survey found that top CEOs' expectations for economic growth over the next six months had slipped to their lowest level in three years. Its CEO economic outlook index dropped sharply to 82.4 in September from the second-quarter reading of 98.6, for a second consecutive quarterly decline.

The survey pool includes Roundtable members: CEOs from large U.S. companies. Any number higher than 50 indicates economic expansion.

"They see things slowing down, materially slowing down," said Harold McGraw, chairman, president and CEO of McGraw-Hill Cos., who also serves as chairman of the Washington-based group.

"We're beginning to see the impact of higher energy costs and higher interest rates on business and economic growth," McGraw said.

Of CEOs surveyed, 23% said they had to absorb "almost all" of the effect of higher energy costs, which can take a toll on profit margins. Twenty-one percent said they had been able to pass on most of their increased energy costs to consumers.

The high price of oil -- which influences the cost of running a factory and the cost of gasoline -- has been taking a toll on corporate expenses and consumer spending in recent months.

Of those surveyed, 74% expected their company's sales to rise in the next six months, 50% said they expected capital spending to remain unchanged and 29% expected employment to decline.

In the third quarter of 2003, as the U.S. economy accelerated out of a downturn, the economic outlook index stood at 67.7, a Business Roundtable spokesman said.

The group surveyed 109 of its 160 member companies.

In a sign of the effect of the slowing economy on business, major U.S. companies, including diversified manufacturer Illinois Tool Works Inc. and soft-drink bottler PepsiAmericas Inc., as well as German-American car maker DaimlerChrysler, have warned over the last week that their upcoming quarterly results might lag behind Wall Street's expectations.

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