CEO Confidence Plunges As Most Plan Cutbacks

Fear of a deepening recession is spreading throughout corner offices across corporate America, prompting chief executives in all sectors to slash thousands of jobs as they scramble to find ways for their companies to survive the worst economic crisis since the Great Depression.

AT&T and DuPont led the list Thursday of blue-chip U.S. companies laying off workers in the weeks before the Christmas holiday. A number of surveys showed that CEOs were planning even more cuts.

The Business Roundtable's quarterly CEO Economic Outlook Index tumbled to 16.5 in the quarter, the biggest drop it has ever taken, to the lowest point by far in the survey's six-year history. A reading below 50 means that CEOs expect contraction rather than growth.

The index had stood at 78.8 in the third quarter; the prior low of 49.3 was recorded in the first quarter of 2003.

Unemployment Continues to Rise

• Job Cuts Picking Up Steam Just in Time for Holidays

"The first quarter and second quarter of next year are going to be negative and therefore, given the cost pressures we are seeing, they are really tightening their operations and really tightening their growth priorities," said Harold McGraw, chairman and CEO of U.S. publisher The McGraw-Hill , who serves as chairman of the Roundtable.

McGraw said companies were counting on more stimulus action from Washington to buoy the economy.

The CEOs, who were polled between Nov. 3 and Nov. 17, said they expect the U.S. economy to be flat overall next year, with recovery in the second half offsetting a weak start.

The majority, 60 percent, expect to cut their U.S. head count over the next six months. Fifty-two percent expect to cut U.S. capital spending and 45 percent foresee a decline in sales over that time period.

Business Roundtable's 160 member companies together employ almost 10 million people and generate $5 trillion in annual revenue.

Spreading Downturn

The news was the latest sign that the global economic downturn, which started with the collapse of the U.S. subprime mortgage market, is worsening.

Top U.S. phone company AT&T said it would eliminate 12,000 jobs, chemical maker DuPont announced it aims to cut 2,500 positions and auto parts maker Hayes Lemmerz International disclosed plans to reduce its headcount by about 1,700.

AbitibiBowater, Viacom, Steelcase, UTi Worldwide also unveiled job-cut plans.

The year-long recession, prolonged housing slump and deepening credit crunch have already taken a heavy toll on U.S. employment, with the Labor Department reporting that the number of workers claiming jobless benefits was at a 26-year-high.

U.S. data due out tomorrow is expected to show that employers cut 340,000 jobs in November, according to a Reuters poll of economists.

Over time, the cuts become part of a self-reinforcing cycle, hurting consumer spending—which is responsible for the lion's share of U.S. economic activity—and further pinching corporate results, economists said.

"You can't pay people if you don't have the revenue to support that payroll or can't obtain the credit," said Michael Goodman, director of economic and public policy research at the University of Massachusetts' Donahue Institute. "But collectively, those actions can make economic conditions worse and fuel this self-reinforcing cycle."

Still, there is no dearth of data reinforcing the grim picture for working Americans.

A survey by Chief Executive magazine found that 75 percent of CEOs expected employment to fall over the next quarter.

Another study by The Hackett Group predicted that some 350,000 U.S. jobs in corporate finance, information technology and other back-office functions would move offshore to India and other low-cost countries over the next two years.

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