Corporate America's view of the U.S.
economy has grown bleaker, weighed down by surging energy
prices, a credit crunch and the worst housing slump in decades,
according to two surveys released on Wednesday.
The polls showed the anxiety about the economy that has
already spooked Wall Street -- the Standard & Poor's 500 index
(.SPX) is down 9 per cent this year -- has spread to the corner
offices of chief executives and chief financial officers, who
expect to cut jobs to cope with rising costs.
The Business Roundtable's quarterly CEO Economic Outlook
Index tumbled five points to 74.5, its lowest level since
"Clearly, we've got a more gloomy scenario" than in the
first quarter, said Harold McGraw, chairman of both publisher
McGraw-Hill Cos Inc (MHP.N) and the Roundtable.
"People are being very cautious, very cost-control
oriented," McGraw told reporters on a conference call. "It's
just the confluence of a lot of things that make people
The drop in the CEO index was the sharpest in almost two
years. In September 2006 it tumbled 16.2 points to 82.4. Any
reading above 50 indicates growth.
The survey found CEOs had also cut their forecast for
overall U.S. economic growth. They now expect gross domestic
product to rise 1.3 percent in 2008, down from a prior forecast
of 1.5 percent.
Thirty-one percent said they expect their companies' U.S.
headcount to fall over the next six months, while 28 percent
expect it to rise. In the first quarter, 22 percent of CEOs had
expected their staffing levels to decline.
Sixty-eight percent said they expect their sales to rise
over the next six months, while 52 percent forecast flat U.S.
capital spending at their companies over that period.
The poll, conducted in the period May 22-June 9, included
responses from 110 of 160 member companies. Together,
Roundtable firms generate $4.5 trillion in annual revenue.
CFOs ALSO GRIM
Another survey, of chief financial officers, showed they
had a similarly grim view of the economy.
Seventy-one percent said the U.S. economy will not begin to
rebound until 2009, and most said recovery will not come until
mid-2009 at the earliest, the Duke University/CFO Magazine
Global Business Outlook survey found. The 1,000 CFOs polled
cited high fuel costs and weak consumer demand as their top
worries. They also forecast a drop in employment.
"This could be the longest slowdown since the double-dip
recession of 1979-81," said John Graham, director of the survey
and a finance professor at Duke's Fuqua School of Business.
The surveys join a stream of negative economic news.
Package delivery company FedEx Corp (FDX.N) -- regarded as
an indicator of U.S. business activity because of the volume of
consumer and commercial shipments it handles -- reported a
quarterly loss on Wednesday and issued a weaker-than-expected
profit forecast for fiscal 2009, citing high fuel prices and
The credit crunch has also taken a toll on the financial
sector: Morgan Stanley (MS.N) and Goldman Sachs Group Inc
(GS.N) posted lower quarterly earnings this week, and Lehman
Brothers Holdings Inc (LEH.N) reported a quarterly loss of $2.8
(Editing by Lisa Von Ahn and John Wallace)
Morgan Stanley (MS.N) on Wednesday
said quarterly earnings plunged as the ongoing credit crunch
slowed investment banking and fueled trading losses, despite
$1.43 billion of one-time asset sale gains.
The second-largest U.S. investment bank reported income
from continuing operations of $1.03 billion, or 95 cents a
share, for its fiscal second quarter, ended May 30, down from
$2.58 billion, or $2.45 a share, a year earlier.
Net revenue fell to $6.5 billion from $11.5 billion last
year. Analysts on average forecast earnings of 92 cents a
share, according to Reuters Estimates.
A breakdown in debt markets last year continues to hurt
financial companies, which have been forced to write down more
than $400 billion of assets, slash jobs and raise new capital.
Morgan Stanley suffered $9.4 billion of fourth-quarter subprime
trading losses and then reported first-quarter earnings that
fell by half.
Morgan follows rival Lehman Brothers (LEH.N), which on
Monday reported a disappointing $2.8 billion loss. Goldman
Sachs Group (GS.N) on Tuesday said its profit fell by 11
percent amid relatively light losses.
Shares of Morgan Stanley have fallen 24 percent this year,
lagging the Amex Securities Broker-Dealer Index (.XBD) and the
broader S&P 500 Index. The stock fell 4 percent Tuesday, as
investor concerns about further losses and capital raising
weighed on financial companies.
(Reporting by Joseph A. Giannone; Editing by Steve
Wall Street analysts raised their fiscal 2008
earnings estimates for Goldman Sachs Group Inc (GS.N) on
Wednesday, a day after the investment bank posted
second-quarter results that exceeded expectations.
"The company's challenge at this point is to re-stimulate
trading while holding on to its investment gains. The second
quarter results do not appear to be sustainable," Ladenburg
Thalmann analyst Richard Bove wrote in a note to clients.
On Tuesday, Goldman Sachs said second-quarter revenue from
fixed-income trading, normally its largest business, fell 29
percent to $2.38 billion.
Bove, who rates the stock "sell," raised his fiscal 2008
earnings estimate for the company to $15.45 from $13.96 per
Oppenheimer & Co analyst Meredith Whitney, who has a
"perform" rating on the stock, raised her 2008 earnings view to
$15.75 a share from $14.65.
"Although Goldman continues to outperform its peers, as
reflected with its higher multiple, we remain cautious on the
brokers group as the capital markets activity remain anemic and
believe Goldman is fairly priced at these levels," Whitney
Wachovia raised its 2008 earnings estimates to $18.21 from
$17.80 a share, while Lehman raised it to $16.81 from $15.04 a
On Tuesday, Goldman Sachs reported an 11 percent fall in
quarterly earnings as market turmoil hit trading and slowed
investment banking, yet the firm again exceeded expectations by
avoiding major losses on assets slammed by the credit crisis.
(Reporting by Supantha Mukherjee in Bangalore; Editing by