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REGIONAL
EXECUTIVES RATE THE 2002 ECONOMY AS WEAK, BUT EXPECT SOLID GROWTH
IN 2003
While St. Louis area business executives find current business conditions
weak, a majority of those polled expect a return to solid growth
next year, according to a recent survey commissioned by the Civic
Entrepreneurs Organization (CEO) and the RCGA.
With the economic
outlook expected to improve moderately, most executives plan to
expand company operations and increase hiring. Additionally, most
executives also foresee little change in interest rates over the
next 12 months. St. Louis area executives generally expect the risks
of higher inflation to remain relatively low, and not a threat to
the emerging recovery period. Correspondingly, six of ten respondents
expect no change in the Federal Reserve policy over the next 12
months. In addition, they believe that the biggest potential threats
to economic recovery are the weakness in the stock market, additional
terrorist attacks and weak business capital spending..
In response to growing state and local government financing problems,
St. Louis area business executives expect public policymakers to
push through some combination of higher taxes and reduced spending.
While slightly more than one third of the nearly 144 business executives
responding to the survey expect real Gross Domestic Product (GDP)
to increase between two and three percent over the next four quarters,
30 percent predict an even faster growth of three to four percent,
and 23 percent expect between one and two percent real GDP growth.
(Survey responses were tabulated and summarized by the staff in
the Research Department of the Federal Reserve Bank of St. Louis.)
In comparison, professional forecasters regularly polled for the
Blue Chip Economic Indicators are a bit more optimistic and expect
real GDP to increase approximately three and one-half percent between
the fourth quarter of 2002 and fourth quarter of 2003.
There is guarded optimism on the part of St. Louis area executives
about the economy and their companies’ prospects next year. About
54 percent of those surveyed agreed or strongly agreed that they
plan to expand their firms’ operations during the next 12 months.
Among the various industries surveyed, expansion was viewed as more
likely in retail and wholesale trading and in manufacturing. Executives
in communications and media, as well as the transportation and energy
industries, were less upbeat. Firms in high tech, in transportation
and energy, and in manufacturing reported the greatest willingness
to add to their existing work forces.
Consistent with the last few surveys, exposure to foreign trade
is not increasing among St. Louis area firms. Likewise, the Internet
remains an important business tool for local companies. Currently,
about 70 percent of local business executives report that Internet
sales and/or business-to-business arrangements are important parts
of their businesses.
“On behalf of CEO (whose members include some of the St. Louis area’s
top executives and business leaders), we’re pleased our survey continues
to show a positive outlook,” says CEO president Louis T. Maull,
IV, of Louis Maull Company.
According to Dick Fleming, president and CEO of the RCGA, these
surveys have consistently shown that “area business leaders find
St. Louis to be a dynamic and supportive place to build and grow
successful businesses in all kinds of industries, and the fact that
most leaders still plan to increase hiring and business investment
is great news for the region.”
OTHER ECONOMIC FORECAST SURVEY HIGHLIGHTS
General Economic Conditions/Outlook
General business conditions are weaker today than they were a year
ago, according to about two-thirds of survey respondents. While
the deterioration in economic conditions affected most industries,
retail and wholesale trading, communication and media, and the transportation
and energy industries, seemed to be hit the hardest. In contrast,
a majority of executives in the manufacturing and high-tech industries
responded that business conditions are stronger today than they
were a year earlier.
Inflation and Interest Rates
A majority of respondents do not expect inflation to accelerate
to any appreciable extent during the coming four quarters. Forty-four
percent expect inflation to average two to three percent next year,
and another 27 percent expect inflation to average one to two percent.
While more than a third of business executives expect higher interest
rates over 12 months, a majority (55 percent) expect no change.
In addition, roughly two-thirds do not expect depository institutions
to clamp down on credit availability.
Profitability and the Stock Market
Recent economic weakness and continued turmoil in financial markets
have tempered the outlook for growth prospects of company profits
and the direction of the stock market. Slightly more than half do
not expect their companies’ profits or the S&P 500 to rise by more
than 10 percent next year. Additionally, area executives continue
to find it difficult to raise prices on the goods and services they
sell.
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