U.S. company executives bearish on economic outlook

Business executives are increasingly pessimistic about the outlook for the U.S. economy, two surveys released on Wednesday showed. The executives at the major companies surveyed expect job losses at their companies in the coming months, while earnings will be squeezed by rising costs. Chief executives of major companies surveyed by industry group BusinessRoundtable expect the U.S. economy to expand 1.3 percent in the second quarter from a year earlier, down from 1.5 percent in the March survey. U.S. gross domestic product (GDP) grew 0.9% in the first quarter of this year from a year earlier. Thirty-one percent of chief executives expect job losses at their companies over the next six months. BusinessRoundtable's forecasts are usually relatively optimistic, but have also gradually turned pessimistic in the face of rising energy prices and a worrying housing market. The CEO remains cautiously optimistic about the company's sales, which they expect to grow over the next six months. About one-third of CEOs surveyed plan to increase their company's capital spending in the next six months. Meanwhile, CFOs are more worried than CEOs, according to a separate survey by Duke University. The chief financial officers surveyed expect the U.S. economy to remain weak for most of next year. About half of the respondents said companies would pass higher fuel and other feedstock costs on to consumers through product price increases; they expect prices to rise by 4.1% over the next 12 months. According to John R. Graham, the head of the survey and a professor of finance at Duke's Fuqua School of Business, the current U.S. economy may be the longest since a double recession in 1979-81. The economy is weak. More worryingly, he said, there were also signs of stagflation, where slower economic growth and rising unemployment are accompanied by rising inflation. The chief financial officers noted that high fuel costs and weak consumer demand are squeezing the company's profit margins. Companies are cutting their capital spending plans for the third straight quarter. Despite lamenting the difficulty of acquiring and retaining top employees, these executives also expect employment conditions to worsen. The credit crisis also continued to weigh on companies. Many companies say loans are hard to come by and borrowing costs have risen. According to the survey, the tightening of credit has had a 'disruptive' impact on many companies with lower credit ratings, with 82% of companies being directly hit by the tightening of credit and higher borrowing costs.