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CEO confidence sinks
Chief executives of small and mid-sized businesses say economic prospects are at their lowest levels since 2003.
By Jessica Seid, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Chief executives of small and mid-sized businesses said their confidence in the economy and prospects for the coming year are at their lowest levels since 2003, a report said Wednesday.

CEOs expecting the national economy to worsen over the next year outnumbered those with a more positive view by two-to-one, according to the Vistage Confidence Index, a quarterly measure of economic, market and industry trends.

The Vistage Confidence Index fell to 89.3 in the third quarter, down from 97.8 in the second quarter, and an all-time low since the index first began in early 2003.

"The data clearly indicates a much more cautious outlook among CEOs," Richard Curtin, a consultant for the index and director of consumer surveys at the University of Michigan, said in a statement.

"CEOs are already beginning to modestly scale back their plans for future growth of their business, as they expect to reduce the pace of investment spending and add slightly fewer new employees during the year ahead."

Overall, 32 percent of all CEOs reported that the economy had worsened, up from just 19 percent in the second quarter.

Meanwhile, 19 percent expected rapid economic growth, down from the peak of 81 percent at the close of 2003.

Although a worsening economy was anticipated, CEOs viewed their own prospects for growth, revenue and profit only marginally less positive than the previous quarter.

"I think the economy is still soft," said Tony Walker, the CEO of Spicy Pickle, a Denver-based sandwich chain.

"We've seen a lot of restaurants that are really coming down on their menu prices, which is really cutting into their profit," Walker noted, although he said he wasn't as worried about the future prospects for Spicy Pickle.

"People will still eat," he said.

Despite Walker's confidence, CEOs were somewhat less likely to plan investments in new plant and equipment in the third quarter, the report said.

Overall, 45 percent of CEOs intended to increase investment spending, down 6 percent from the previous quarter, and the lowest level recorded in three years.

Although nearly half of all CEOs expected to increase prices charged for their products and services, few expected they could completely offset higher energy, material and labor costs. Even with higher prices, CEOs expected a slowdown in revenue growth during the year ahead.

One-third of all CEOs reported they would have to absorb the higher costs.

The report also noted that finding qualified employees was reported by one-third of all CEOs as their top concern.

Hiring and retaining qualified employees was mentioned more than twice as frequently as other problems, from high costs of energy and health care to rising interest rates and falling real estate prices.

"It's important to note that just eight percent of all firms in the third quarter report the intention to reduce employees, indicating that there is not yet strong evidence to support a significant downward turn in the economy," said Barnett.

Small and mid-sized businesses in the U.S. create 75 percent of all new jobs and generate 50 percent of national revenue, Vistage said.

Vistage polled 1,939 CEOs of small- to mid-sized companies between May 15-24, with a margin of error of 1.9 percentage points.

Small businesses struggled in summer months Top of page

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