BUSINESS ROUNDTABLE ANNOUNCES FOURTH QUARTER CEO ECONOMIC OUTLOOK SURVEY RESULTS

Transcription

1 BUSINESS ROUNDTABLE ANNOUNCES FOURTH QUARTER CEO ECONOMIC OUTLOOK SURVEY RESULTS SPEAKER: TERRY MCGRAW, CHAIRMAN, BUSINESS ROUNDTABLE CHAIRMAN, PRESIDENT AND CEO, THE MCGRAW-HILL COMPANIES THURSDAY, DECEMBER 4, 2008

2 OPERATOR: Ladies and gentlemen, thank you for joining Business Roundtable s briefing on its fourth quarter 2008 CEO Economic Outlook Survey. At this time, all telephone participants are in a listen-only mode. Later we will conduct a question and answer session where you will be given the opportunity to ask questions about the CEO Economic Outlook Survey. If you should require assistance during the call, please press star, then zero. As a reminder, this conference is being recorded. I will now turn things over to our host, Mr. Harold McGraw III, Chairman of Business Roundtable and Chairman, President and CEO of the McGraw-Hill Companies. Mr. McGraw? HAROLD MCGRAW: Thank you, Reggie, and good afternoon everybody and thank you for joining us for our Business Roundtable fourth quarter 2008 CEO Economic Outlook. As Reggie said, I m Terry McGraw, Chairman of Business Roundtable and Chairman and CEO of the McGraw-Hill Companies. The members of Business Roundtable are Chief Executive Officers of 160 of the nation s leading companies. Collectively, we represent nearly 10 million employees and $5 trillion in annual revenues. Conducted quarterly since the fourth quarter of 2002, Business Roundtable CEO s Economic Outlook Index is the leading CEO-based survey of sales, capital spending and employment. Today we re announcing the results of our fourth quarter 2008 survey, which reflects expected business conditions from our companies perspectives for the next six months. Again, that s for the next six months in terms of economic activity. This quarter s survey was conducted between November 3 rd and November 17 th. That s important in terms of getting a range of feeling about how these perspectives were arrived at, so between November 3 rd and November 17 th. In addition to the usual questions about sales, capital spending and employment outlook, in the fourth quarter we also asked member CEOs to address the impact current credit challenges are having on their businesses, and to identify their greatest cost pressures. Now let me share with you the specific results, and by the way, you can find a chart comparing these results with previous quarters at On the three major indicators included in the survey sales, capital spending and employment our member CEOs projections have decreased significantly across the board from last quarter s survey. On sales, 38 percent of member CEOs anticipate sales will increase in the next six months. But 17 percent expect sales to remain the same and 45 percent project that sales will decline. That means that 62 percent expect sales to either stay the same or decline. On capital spending, only 10 percent of CEOs are projecting higher spending in the next six months. Thirty-nine percent expect spending to remain the same and 52 percent are projecting a decline. On employment, 9 percent of CEOs expect to hire employees, 32 percent expect employment to stay steady and 60 percent project lower employment. We combined the three categories sales, capital expenditures and employment into an index to provide a quick snapshot of upcoming economic conditions. This quarter s CEO Economic Outlook Index contracted to 16.5, a sharp decline from last quarter s I want to remind you that ours is a composite-diffusion index centered on 50, and we believe an index reading of 50 or lower would be consistent with overall economic contraction, while reading that 50 or higher would be consistent with expansion. In their projections for the overall U.S.

3 economy, member-ceos are assuming 0 percent GDP growth in the business plans for next year. In terms of cost pressures, when we asked our CEOs to rank the greatest cost pressures facing their businesses, as we do each year in the fourth quarter, we saw greater diversity in their responses this time. Twenty-six percent of our CEOs cited material cost as the greatest cost pressure, 18 percent cited labor cost, 17 percent cited pension cost, 15 percent cited health care expenditures and litigation and energy costs were each cited by 12 percent. Of note, in the 2007 survey pension costs were not cited by our CEOs. Yet, in this survey 17 percent say it is their greatest cost pressure. This reflects the dramatic drop in the stock market and the resulting impact that it s had on retirement funds. The diversity of the cost pressure answers from our CEOs reflect the fact that the global slowdown is multifaceted and impacting different industries and companies in different ways. I would point out that many of the cost pressures facing our member companies could be mitigated by implementing policies that have long been at the top of Business Roundtable s agenda. We look forward to sitting down with members of both parties to work towards a meaningful reform of our health care system and a more efficient and sustainable energy future. We also asked our CEOs how the recent challenges in the credit markets have affected their borrowing situation, and 56 percent of the CEOs reported that the situation has led to increased borrowing costs. This reflects the fact that our member companies are not all equally dependent on the credit markets and therefore, the dislocation has affected some more than others. In closing, I want to emphasize that this quarter s results reflect the complex challenges at work in the U.S. economy today. The current crisis is placing great stress on businesses throughout the American economy, both financial and non-financial companies as well as on workers and consumers. We must do more to stimulate our economy, which is why in October, Business Roundtable CEOs called for an additional stimulus measure designed to address the ongoing challenges in the global capital market. Going forward, we are committed to working with the new administration and with Congress on bipartisan solutions to help our workers and businesses and to restore economic growth. I think I should leave it there, and I d be happy to take any questions that you may have. OPERATOR: If you are on the phone and want to ask a question about the Business Roundtable CEO Economic Outlook Survey, please press star, then one on your touchtone phone. You will hear a tone indicating you have been placed in queue. You may remove yourself from queue at anytime by pressing the # key. If you are using a speakerphone, please pick up the handset before pressing the button. Once again, if you have a question, please press star, one. We do request that you limit your questions to the CEO Economic Outlook Survey. We will now take your questions. We ll go now to the line of Scott Malone with Reuters News. Please go ahead. Q: Hi, that s, of course, Reuters News. The first thing I wanted to ask, Harry, is that I saw the 60 percent of CEOs expecting to cut head count in the coming six months and we ve seen, certainly, a lot of layoffs across the economy, both this year and today in fact. And what I wonder is, to what extent does corporate America worry about really getting into a bit of a

4 vicious cycle, where consumer spending is down, profits are down, layoffs beget consumer spending going down further, begets profits going down further, beget more layoffs. I mean, what s the what s the risk that it just becomes self-sustaining here and what, if anything, could break the cycle? MR. MCGRAW: Yeah, thank you, Scott. And, again, there s an awful lot of uncertainty here and, once again, the difference in the sectors, industries and different companies will all be impacted in different ways. But, yeah, when you re in a downturn and when uncertainty is high, clearly you can it s a self-begetting prophecy and just (inaudible). But I think, at this point, people are looking out for six months and saying, all right, we are clearly in a recession and we clearly see, at this point, that the first quarter and the second quarter of next year are going to be negative. And, therefore, given the cost pressures that they re seeing and as we label them, they are really tightening their operations and really tightening their growth priorities to those specific areas to where they can make headway. So I think that the cost pressures right now and looking out for the next six months, these numbers reflect how people are dealing with the downturn and hoping that with perhaps some additional stimulus, with a new administration now focused on different directions here, that we are going to be in a position to assume growth again in the second half of next year. However, when you take a look at the projection of 0 percent growth, obviously it is during the fourth quarter is just going to offset the downturn in the first half. So from a sentiment standpoint, I think that we will be looking for signals that certain parts of our markets are getting a little bit of help and I think we ll see a reversal of some of these. Right now you re reflecting the negativity of the recession that we re in and managing your balance sheet very carefully are going to be top of the mind. Q: Mm-hmm. Thank you. OPERATOR: Thank you. And we ll now go to the line of Peter Coy with BusinessWeek. Please go ahead. Q: Hey, Mr. McGraw. Thanks for taking the questions. You mentioned very briefly some of your priorities: health care reform and energy policy. But are there things that Business Roundtable members agree on that are more crisis-oriented that would things that would get us out of the current slump? MR. MCGRAW: Yeah, I think that, clearly, the new administration has signaled that they are looking for an additional economic stimulus package and one that would have multiple factors to it. And we look forward to working both with the administration on developing that and giving our support as well as with the Congress to get it enacted. The keys to the stimulus package that the administration is putting forward is a combination of a number of things, but I would put them in three categories: certainly rebates, the second one would be other sources of income like the extension of unemployment benefits, etc; and the third one is one that the president-elect has talked about significantly, and that s infrastructure projects.

5 Now, the question is, where are the weights on those? I think that there is some concern that rebates and rebates alone aren t going to be enough and that more weight would be placed probably on the infrastructure side, getting state and local construction capabilities up. But I think that supporting this and helping both the administration and the congressional level in terms of helping to get those weights correct is what we ll be doing. But, broader than that, Peter, certainly health care, energy, climate change these are going to be major issues that are going to be addressed in the first year. Also we would put into that education and, again, across the board in terms of workforce competitiveness. I would also put, even though I think it will be later on in the year that it will probably get addressed, trade is going to become a very important issue. We ve got to be very careful that, as a country, we don t become more protectionist and become a bit isolated, that we have very strong global engagement responsibility and therefore completing Doha development agendas as well as some of the already negotiated agreements with Colombia, Panama and Korea will be very important. But then it s going to be very important to establish a new agenda in terms of how we re going to approach this global engagement. Q: Okay, thanks. MR. MCGRAW: Thanks, Peter. OPERATOR: All right. Thank you. And, once again, if you have any questions or comments, please press star, one at this time. And if you are using a speakerphone, please pick up the handset before pressing the button. And I have no further questions in the queue. Please continue. MR. MCGRAW: Okay. That s our fourth quarter 2008 outlook. And, again, I appreciate your attendance on it. I wish it was a little better news but it is what it is, and we ll see as we get into next year and what the first quarter looks like for its out period for six months. Thanks very much for joining us. OPERATOR: This concludes Business Roundtable s briefing on the fourth quarter 2008 CEO Economic Outlook Survey. A transcript of this call will be available later today. Please visit for more information. You may now disconnect. (END)