BUSINESS ROUNDTABLE ANNOUNCES THIRD QUARTER CEO ECONOMIC OUTLOOK SURVEY RESULTS SPEAKERS:

Transcription

1 BUSINESS ROUNDTABLE ANNOUNCES THIRD QUARTER CEO ECONOMIC OUTLOOK SURVEY RESULTS SPEAKERS: IVAN G. SEIDENBERG CHAIRMAN, BUSINESS ROUNDTABLE CHAIRMAN AND CEO, VERIZON COMMUNICATIONS LARRY BURTON EXECUTIVE DIRECTOR, BUSINESS ROUNDTABLE JOHANNA SCHNEIDER EXECUTIVE DIRECTOR, EXTERNAL RELATIONS, BUSINESS ROUNDTABLE Tuesday, September 28, 2010

2 Operator: Ladies and gentlemen thank you for joining Business Roundtable s briefing on its Third Quarter 2010 CEO Economic Outlook Survey. The following information is provided by Business Roundtable. The members of Business Roundtable are chief executive officers of the nation s leading companies. Collectively they represent more than 12 million employees and nearly $6 trillion in annual revenues. The results of Business Roundtable s Third Quarter 2010 CEO Economic Outlook Survey reflect expected business conditions from their member companies perspectives for the next six months. Conducted quarterly since the fourth quarter of 2002, Business Roundtable s CEO Economic Outlook Survey is the leading CEO-based survey of sales, capital spending and employment projected over the six months. This quarter s survey was completed between September 1 and September 21. You can find an interactive chart illustrating these results as well as those of previous quarters and comparing them with key economic metrics such as GDP and employment at for more information. Before I turn the call over to our host, please note that all telephone participants are in listen-only mode at this time. 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 0. Today s conference is being recorded. If you have any objections you may disconnect at this time.

3 With that I will now turn things over to our host, Mr. Ivan Seidenberg, Chairman and CEO of Verizon Communications and the Chairman of Business Roundtable. Also joining Mr. Seidenberg are Johanna Schneider and Larry Burton with Business Roundtable. Mr. Seidenberg? Ivan Seidenberg: Okay, thank you and good morning everyone. Thank you for joining us this morning to discuss the release of Business Roundtable s Third Quarter 2010 CEO Economic Outlook Survey. As you can see, this quarter s survey results show that our CEOs expect lower sales than last quarter and a commensurate dip in hiring. Trending is up, however, in capital expenditures, with business prepared to spend slightly more in preparation for future demand and actually for investments in technology cycle activities. When we look at the outlook for the next six months on sales, 66 of member CEOs anticipate sales will increase in the next six months, which is down from 79 percent last quarter. 25 percent expect sales to remain about the same, compared with about 17 percent last quarter. And nine percent expect sales to decline, up from last quarter s four percent. On capital spending, 49 percent of member CEOs are projecting higher spending in the next six months, slightly higher than the 43 percent who projected increased spending last quarter. 45 percent expect spending to remain the same, which is just slightly down from the 50 percent who projected even spending last quarter. And only six percent project a decline, about even with the second quarter. On employment, 31 percent of member CEOs expect to add employees, fewer than the 39 percent who did last quarter. 46 percent expect employment to

4 remain steady, just above the 43 percent who did last quarter. And 23 percent project lower employment, up from last quarter s 17 percent. So each quarter we combine the three categories sales, capital spending and employment into an index to provide a quick snapshot of anticipated economic conditions for the next six months. This quarter s CEO Economic Outlook Survey index contracted to 86. This marks an 8.6-point decrease from last quarter s But we would remind everyone that our index is a composite diffusion index centered on 50, and the results can range from a negative 50 to a positive 150. An index reading of 50 or lower is consistent with overall economic contraction, while a reading of 50 or higher is consistent with expansion. So the results indicate that this is and will continue to be somewhat of a long and uneven recovery. We are not seeing a lot of major momentum develop here. We are still seeing some caution from consumers and companies alike. And when consumers are cautious it decreases demand projections. CEOs need to see growing demand in order to increase hiring is generally the way it would work. However, companies are continuing to invest in capital, which is a good sign. I think business fundamentals at the micro level are reasonably strong, and therefore companies are making investments for selected technology improvements and/or certain capacity improvements. These capital expenditures are pumping right back into the American economy. In fact, according to another recent survey of our membership, large firms generate an estimated $1 1/2 trillion in sales for small business annually.

5 So generally what we are seeing here is not a lot of momentum in the economy, but there is some positive news I suspect in that we are not seeing business fundamentals deteriorate to the point where we would be concerned in a major way about a double dip. I guess with that we'd be happy to take any questions you might have. Operator: If you are on the phone and would like to ask a question about Business Roundtable s CEO Economic Outlook Survey, please press star 1. We request that you limit your questions to the CEO Economic Outlook Survey. We will now take your questions. Our first question is from Scott Malone of Reuters. Your line is open. Scott Malone: Good morning. One thing that occurs to me here looking at the, you know, forecast higher spending on capital equipment, how much of this just reflects kind of the record high balance sheets that a lot of corporate America are sitting on? Record high might be the wrong term, but I mean cash reserves are up and we have seen that reported pretty strongly over the, you know, the past few months. And that's also coming out in the form of, you know, all the M&A that's been going on the past few weeks. I mean how much of this is confidence, and how much of this is just, you know, boards wanting to redeploy capital? Ivan Seidenberg: Well Scott I would answer that this way. I think every company has their own internal rate of return on any capital they spend. So I don't think that spending is a function of because you have it, you spend it. I think it s because people see a return on that.

6 My guess is that a good piece of the capital spending is geared to continued productivity improvements you know, technology deployment as well as, I suspect, some looking down the road to anticipate some perhaps increased demand in certain sectors. The issue, as you probably know, is it s uneven. So we are seeing some sectors are a lot more cautious than others. But overall I think the way business looks at this is that most people are taking care of their own business fundamentals, but in the aggregate we are still not seeing a lot of demand out there. And, you know, where the jobs are going to come from and where the new industries are being built and eliminating sort of the overhang of the uncertainty that surrounds the economy is still causing the economy to remain somewhat sluggish and not build a lot of momentum. Scott Malone: Thank you. Coordinator: Our next question will come from Alex Kowalski of Bloomberg News. Your line is open. Alex Kowalski: Hi. You sort of touched on this before just a minute ago talking about the spending. But I am curious if the you know, the capital spending on the technology might be for any kind of job creation or if it s going to do something like automation that might actually work against that. Ivan Seidenberg: Well, so Alex here s the way you look at that. I think that when you make it investment technology to make yourself more productive, it s with the idea that you are going to be able to expand faster and in effect create work going forward. So what happens is you create more productive operations for existing factories and processes in anticipation that you are going to have future growth in other areas.

7 So I think what I would get at here is that during a period like this every industry, every business, will continue to make themselves more productive, more competitive, make sure that we are competing with the Asian companies and all the South American and European companies in anticipation of how all this capital will create new industries going forward. So I think that until we see let me come back to the point until we see aggregate demand start to materialize, the hiring will continue to be somewhat on a slower pace. Alex Kowalski: Thank you. Operator: Our next question comes from Ed Crooks of Financial Times. Your line is open. Ed Crooks: Hello. Good morning. I wondered how much of a role you thought politics was playing in these concerns about a double dip. There has been a lot of talk about political uncertainty, and you have talked about concerns specifically in the area of tax policy corporation tax, a couple of other things. That said, in fact do you think that is kind of a significant factor in what people are thinking about? Ivan Seidenberg: Well Ed I would answer that this way. I think what you call politics to us we call costs. So I think that to the extent that there are, you know, issues of policy discussions that need to play themselves out around taxes and regulation and things of that nature the deficit, all these kinds of things that as all of that matures and we develop a growth program heading into 2011, some of those uncertainties could go away and then we could see the aggregate economy looking stronger.

8 I think what s very interesting about all this is that most companies would tell you that they are managing their balance sheets correctly, they are focused on making smart capital investments where appropriate, there is still M&A activity out there. But these macro issues which aren't just in the U.S., they are sort of global it s taken awhile for the timing of all that to sort of clear and allow for much more certainty in terms of how people see these economies beginning to take off. Ed Crooks: Right. So I mean is that a yes you think it is a factor? Ivan Seidenberg: Well I think the uncertainties impacting the growth of the economies are clearly a factor. Taxes you said it. Those are issues. I don't call those politics, I call those real policy issues. Ed Crooks: Sure. Operator: Our next question comes from Darrell Hughes of Dow Jones Newswires. Ivan Seidenberg: Okay Darrell. Darrell Hughes: Hi. Thanks a lot. So you spoke about, you know, needing aggregate demand. And, you know, aggregate demand is impacted by many economic variables you know, output and climate, markets, et cetera. So looking at long-term growth or stabilization, do you think that's going to take place, like, in late 2011 or, you know, May 2012, you know, looking ahead, beyond. Because there s going to be tons of uncertainty over the next several months. Ivan Seidenberg: Yes. Well I think the fairest way to answer that question is just to tell the truth. I mean this survey is really a projection of six months out. So I think all of us or anybody who has been projecting beyond that hasn't gotten it right.

9 So I think when you look at this survey we are looking out in six months. So we are seeing still some demand but not as robust as it was six months ago or at least the last quarter, three months ago. So I think Darrell, that there is still a lot of issues impacting the economy that haven't quite cleared up, and this is the reason why we are still having a sort of a sluggish start here to really build some momentum. Darrell Hughes: Thanks. Operator: Our next question will come from Brian Wingfield of Forbes. Your line is open. Brian Wingfield: Hi. Thanks for doing this. You mentioned the unevenness of the demand. And within the six month period, where are CEOs expecting to see demand increase the most in which sectors? Ivan Seidenberg: Well, you know, it s an interesting question. We don't usually break this down by sector, so I am not in a position to comment on that. But if we just state the obvious, we know real estate is down and we know retail is flatter. So, you know, we are looking at we are not looking at the sort of the big drivers of what the retail sectors would see a big pickup in Brian. So I am not I don't maybe Larry or Johanna would have any added insight into the survey results on that question. You guys do? Johanna Schneider: I don't. We do not - as Ivan said we do not break it down into sectors. We do aggregate all of the responses so there is one clear picture of the overall economy. So the truth is we just don't compile that data.

10 Ivan Seidenberg: Okay. Thanks. Yeah, would say this though Brian. So for what it s worth, now that we gave you a non-answer to the question, but here s another good point. We had the highest number of CEOs responding on this survey than we have had in awhile. So Johanna what was the number? Johanna Schneider: A hundred and twenty-five CEOs. Ivan Seidenberg: Right, which is a huge number. So that's a pretty good base of companies that have responded. Brian Wingfield: And how many were there last time that responded? Ivan Seidenberg: What was it, just under 100 just about 100 I think who responded. Johanna Schneider: Exactly. Right 100. Ivan Seidenberg: Yes. That's a big you know, a lot of engagement, a lot of people into this so a lot of people seeking the same kind of information every individual company is seeking. Well what does the aggregate look like? So that's kind of where we are Brian. Brian Wingfield: Okay. Thanks. Operator: Our next question comes from John Maggs of Politico. Your line is open. John Maggs: Getting back to the uncertainty in the policy picture in Washington, can you talk a little bit about the delay in the decision about what income tax levels are going to be and just any signs on the survey about how that is weighing on the CEOs sentiment specifically? And maybe beyond that if you know, what would be the would there be a significant economic impact if Congress did

11 not act and there was uncertainty going into the new year about what people s actual taxes are? Ivan Seidenberg: Yes. Okay. So I think the fairest way to answer that question would be to make sure that I d put the issue in its broadest context and then deal with the tax question. Certainly what s front and center right now is what will happen on all these taxes. And, you know, you got from a business perspective you have capital gains tax, you got dividends tax. You know, you got all these issues. And so to me, I think that's a big component of it. But the business community has also been very focused on the broader set of issues surrounding all the regulations with fin reg and with the healthcare and all these issues. So to me, that what would be fair to our member companies is to suggest that yes, it would be very good to for the Congress to clarify its position and the president to clarify his position and have Washington sort of align itself around what it wants to do with these taxes. But I think even if you did that you still have some of these other major issues surrounding removing some of this uncertainty surrounding all these other industries and all these costs and all this sort of embedded bureaucratic activity. So I think John the issue for us is we would love to see an acceleration of these policy decisions and give us the certainty one way or the other on a whole range of things that would help people drive to, you know, a more certain business environment in And then we'll let the economy go from that point.

12 John Maggs: I guess people are looking at the possibility of some kind of a deadlock even in a lame duck session over extending taxes. And I am just wondering if that would be kind of a devastating blow to the economy if people s taxes went up on January 1. Ivan Seidenberg: Look. I think that you can get into the there is no question that in this sluggish economy a significant tax increase is going to have an effect. And, you know, as far as we are concerned at BRT we have made our position pretty clear that you have a big tax increase during this period of time it s not going to help the growth of the economy. But, again, these are decisions that Congress, the President, they need to debate it. They need to hear all sides of it and they need to take action. And then we will work with them to see what we can do to make sure that we leverage anything they do that we think makes a lot of sense. And things that don't, we'll tell them what our position is. But, again, I think the fair answer to this is not to just focus on one item but to remind everybody that the BRT member companies are focused on a big broad range of activities that need to be clarified. And I think we need alignment out of it now. I don't I personally think that when we get through the next three or four weeks and we have a new we have an election and we get some rebalancing one way or the other however it works out I think there isn't a member of Congress or anybody in the White House that isn't focused on trying to figure out what we need to do to get the private sector growing as fast as we know how to get it growing. John Maggs: Thank you.

13 Operator: Our next question comes from Darrell Hughes of Dow Jones Newswires. Your line is open. Darrell Hughes: Hi again. So I just wanted to piggyback off the sector question. Is it even possible for BRT to begin compiling and then kind of release some data on the sectors? Because, you know, looking at the aggregate growth and demand and, you know, aggregate economic indicators, it s useful. But having that having the context of the sector breakdowns considering that, you know, the economy economic growth is fragmented would be just as beneficial. So I m not sure if that s something you guys could do, but hopefully... Ivan Seidenberg: Well I appreciate the invitation, Darrell, for us to add some more conversation to this. Look, I would say this, that the index we come out with which is the three composite components to it in a diffusion index has been pretty accurate over the years. So I think as far as it goes it s very good. Now do we need more granularity? My guess is why don't we ask the BRT staff to get a hold of you? And perhaps there are other surveys or other information out there that you can look up. I don't know that. Johanna or Larry can you help with this one? Johanna Schneider: Sure. Darrell I think the best thing for me to do is to get back to you... Darrell Hughes: Okay. Johanna Schneider:...because we are not confident that we have the ability to provide the same...

14 Darrell Hughes: The micro look at the sectors? Okay. Johanna Schneider: Precisely. See, we have... Ivan Seidenberg: Yes. We don't ask the questions. I mean the issue is, it s very difficult simply because we would have to really make sure we had statistically valid numbers of people in each sector and all this kind of stuff. So it s... Darrell Hughes: Okay. Ivan Seidenberg: I'll leave that to the staff. But it s a fair question. Darrell Hughes: Okay. Ivan Seidenberg: And actually okay. Very good. Darrell Hughes: Thanks. Ivan Seidenberg: Maybe we have time for another one or two and we are done? Operator: Our next question comes from Jeffry Bartash of MarketWatch Dow Jones. Your line is open. Jeffry Bartash: Yes, hi Ivan. Ivan Seidenberg: Hi Jeff. Jeffry Bartash: I m not sure if you've talked to CEOs about this, but obviously there has been increasing trade tensions with China. I am wondering if there is any consensus

15 among CEOs about whether the Administration should push a little harder or pull back a little bit given that so many companies have such a stake there. Ivan Seidenberg: Well there is two there is generally two camps at the BRT: those who want us to push hard and those who want us to push harder. So I don't think there is any misalignment within the BRT about some of these issues. And we have, you know, a range of activities on this, and I actually serve on the export council. Jim McNerney runs it along with Ursula Burns from Xerox. There is very active participation on these issues the free trade agreements, all these issues. So I think we are pretty much with the direction of the Administration on this. And as a matter of fact I think we would continue to encourage to be more aggressive on these issues. Now we get these mixed political solutions or at least mixed steps coming out of the Congress here and there. But I think on this one the Administration seems to be heading in the direction that most businesspeople would feel is heading in the right direction on this. Larry would you just maybe add a comment there please? Larry Burton: No, I agree with that. I believe that that you have characterized it exactly right. Again, we are at the end of a Congressional session where, I think, people are trying to put a, you know, exclamation point on an issue. And I think we should continue work with the Administration as you have articulated. Ivan Seidenberg: Yes. I think this one, the President he s getting the right direction here.

16 Jeffry Bartash: Thanks Ivan. Ivan Seidenberg: Okay. Last question? Operator: Our last question comes from Tali Arbel of the Associated Press. Your line is open. Tali Arbel: Yes, hi. How are you? Ivan Seidenberg: Good. Tali Arbel: My question you just said a couple of minutes ago that the survey s aggregate demand has in the past proved to be very accurate. And Ivan what did you mean by that exactly the aggregate demand? Ivan Seidenberg: If I said what you said, maybe I maybe it s the reason I think I m not what I said is that the aggregate let me now use a different word that the survey results of the BRT member companies is very accurate. So when they say sales will go up, they generally go up. When they say that hiring will go up, it generally goes up. So I think it s CEOs have the best insight as to what s going on in their companies. So when we get 125 of us... Tali Arbel: Okay. Ivan Seidenberg:...that all participate in the survey, we get very good results.

17 So at this point what I would say is when you when we look at the results of the survey, we are all not projecting an acceleration of growth in the economy. So last quarter it appeared to look better than it does this quarter. I hope that helps you. Tali Arbel: Thanks. Ivan Seidenberg: Okay. Johanna Schneider: Tali let me this is Johanna. Let me just let you know, as well, on our website we have actually tracked GDP growth actual GDP growth from 2002 to this quarter and compared it against the CEO survey predictions. And you will see it is remarkably predictive. And so that is actually up on our webite today. Tali Arbel: Okay. Ivan Seidenberg: Okay operator, I think that'll do it. Thank you all for taking the time to join us this morning. Thank you. Operator: This concludes Business Roundtable s briefing on the Third Quarter 2010 CEO Economic Outlook Survey. A transcript of this call will be available tomorrow. Please visit for more information. Thank you. END