By Scott Malone
(Reuters) - Spooked by the United States' recent budget standoff in Washington and the European debt crisis, U.S. chief executives' view of the economy deteriorated sharply in the third quarter, a survey released on Thursday found.
Corporate chieftains told the Business Roundtable that they had become more likely to cut jobs over the next six months, and fewer expected to boost their companies' sales and capital spending over that time.
The group's CEO Economic Outlook index dropped for a second consecutive quarter to 77.6, its lowest reading since the fourth quarter of 2009. It remained above 50 -- which separates forecasts of growth from decline -- and a bit below the index's average of 79.2 over its near-decade history.
"This past quarter was a challenging one for our economy," said Boeing Co <BA.N> CEO Jim McNerney, who chairs the Roundtable. "It brought high oil prices, continuing European sovereign debt crisis, our own debt-ceiling debate and the S&P downgrade in the U.S., which in sum added to an already uncertain economic and business environment."
A quarterly survey by the Business Roundtable found that 24 percent of CEOs expected to cut jobs in the U.S. over the next six months, more than double the 11 percent who had forecast that in the second quarter. Thirty-six percent expected to add jobs, down from 51 percent in the second quarter.
Persistently high U.S. unemployment, which hovers around 9 percent, is blamed for the nation's prolonged economic sluggishness and is shaping up as a key issue in next year's presidential election.
The number of CEOs who expected their companies' sales to rise over the next six months fell to 65 percent from 87 percent and the number who expect to boost capital spending fell to 32 percent from 61 percent.
Overall, CEOs look for real U.S. gross domestic product to rise 1.8 percent this year, sharply lower than the 2.8 percent growth forecast in March.
Their worry stood in contrast to a report from the Commerce Department that found U.S. GDP rose 1.3 percent in the second quarter, up from a previously reported 1 percent.
The darkening collective view from the 140 CEOs surveyed from August 29 through September 16 is at odds with the rosier picture that individual executives present to investors and the media.
Even as investor worries have sent the broad Standard & Poor's 500 index <.SPX>, down 14 percent since mid-July, some CEOs have insisted publicly that they are not worried that the nation's economy is at risk of slipping back into a downturn.
"In the U.S., we're still seeing economic expansion," Ford Motor Co <F.N> CEO Alan Mulally told a small group of reporters in Bangkok on Thursday. "We're very encouraged by the recovery even though it is slower than in the past."
Likewise, the chief financial officer of Nationwide Mutual Insurance Co <NMUIC.UL>, one of the country's largest home and auto insurers, said: "Any kind of continued economic slowdown will put pressure on the business, but for us we've seen some pretty positive trends in the third quarter."
Other CEOs have urged people to tune out the recession worries that have contributed to market volatility.
"My advice to you is that your life would be better if you didn't watch TV or read the paper," General Electric Co <GE.N> CEO Jeff Immelt told students at Dartmouth College in August. The line has become a regular feature of his public comments since the largest U.S. conglomerate sold a majority stake in its NBC Universal media business.
The mismatch is to be expected from a group whose jobs include trying to drive up their companies' stock prices, said one investor.
"They have to be cheerleaders, that's part of their jobs. And it's part of our jobs to be professional skeptics," said Peter Klein, a senior portfolio manager at Fifth Third Asset Management in Cleveland. "There's a lot of denial that goes on until there's no more denial ... As an investor you have to really discount a lot of that stuff as you hear it."
Boeing's McNerney said the contrast reflects executives' view that the economy is not as weak as investors believe.
"When we're interviewed a lot of times, because the employment situation is so difficult and because the political environment is so difficult, a lot of the questions come from a very negative place," he told reporters. "So we end up sounding a little positive because our companies are in fact expanding."
PULLBACK FROM RECORD HIGH
For most of the past two-and-a-half years, the CEO Outlook index had been recovering from the record low of negative 5 hit in the first quarter of 2009, in the immediate aftermath of the financial crisis that brought down Bear Stearns and Lehman Brothers. Early this year, it reached 113, its highest since the group started taking the survey in December 2002.
Regardless of the mismatch, investors will get a more detailed view of corporate America's health in the next few weeks when a wave of big public companies begin reporting third-quarter results.
(Reporting by Scott Malone in Boston, additional reporting by Ben Berkowitz in New York and Ploy Ten Kate in Bangkok, editing by Dave Zimmerman)