Signs Of Recovery
Yale chief economist Robert Shiller likens the current U.S. labor market to that of the late 19th century, when a great surge in road and railway construction employed thousands of unskilled laborers who later lost their jobs to recession and technological advances like the steam shovel. “Every recession causes a step back, and then progress unfolds,” he says. Although victory is not yet at hand, nearly 70 percent of CEOs in our survey believe that increased hiring will indicate an economic upswing in their regions. More than a third agree that a drop in unemployment is the No. 1 sign of a sustainable recovery. For his part, Leggett & Platt’s Haffner is currently looking to fill a few hundred open positions, mostly hourly manufacturing jobs. “Hourly workers are in the best position to be hired back because companies have figured out how to do more with fewer people,” he says. “Jobs in administration and middle management are just not coming back.”
Our June poll revealed that a majority of CEOs worldwide (54 percent) expect the European financial crisis to have a significant or very significant impact on global economic recovery. Meanwhile, China is expected to be the first to fully recover, according to 51 percent of CEOs surveyed in June, down slightly from 59 percent in March. By contrast, 19 percent believe North America will recover first, up from 16 percent in March. Less than 1 percent of business leaders surveyed see Europe recovering first, down slightly since March.
China’s young, growing workforce and emerging middle class help explain why CEOs like Timothy M. Manganello are bullish on the country. Manganello leads BorgWarner Inc. (BWA), a supplier of powertrain components to auto manufacturers worldwide with $4 billion in 2009 revenues. While China accounts for less than one-quarter of the revenues for the Auburn Hills, Mich.-based company, it’s where Manganello sees the most demand for technologies that aim to improve fuel economy and reduce emissions. Zandi declares flatly that China has already recovered, describing the country’s blistering GDP growth of 11.9 percent in the first quarter of this year as “unsustainable.” He adds: “Their economic stimulus package was twice the size of ours, and when they said ‘shovel ready,’ they meant it.”
IBM Corp. (IBM) CEO Samuel J. Palmisano agrees that stimulus programs have had a positive impact on the U.S. and China. But he cautions that those programs “cannot and should not last forever. The key to building sustainable growth lies in addressing the underlying systemic issues that caused the collapse in the first place. Even as countries begin to emerge from technical definitions of recession, many of these underlying issues remain — not only with banks and real estate markets but across all the systems that run our world.”
Focus On Growth
Despite concerns about the pace and strength of the recovery, 80 percent of CEOs expect improvement in growth for their companies through 2011, with 29 percent expecting significant improvement. CEOs of non-U.S. companies are nearly twice as likely as their U.S. counterparts to predict robust growth next year. Jean Martin, CEO of BSB International SA (NYSE Alternext: BSB), a Belgium-based IT solutions and services provider with 2009 revenues of $29.9 million, says his company is “planning to increase its head count by 25 percent in 2010 and to double the size of the company within the next three years in order to support the projects portfolio and the new business opportunities.”
Public companies depend on capital markets to finance their growth, which helps explain why CEOs pay close attention to the international financial system. In our June survey, 75 percent of CEOs say that increases in both consumer and investor confidence are necessary to stimulate global financial markets, down slightly from 78 percent in March. Access to credit is ranked as the second most effective method (44 percent, down from 63 percent in March). Regulatory reform is third at 14 percent, down from 32 percent in March.
Manganello’s cautious optimism captures the mood of most CEOs. BorgWarner, he says, has restored wages to prerecession levels after cutting them by up to 15 percent. And with three-quarters of the company’s revenues coming from outside the U.S., Manganello is hiring hourly workers in Korea, China and India to support production demand. New managers are another story. Says Manganello: “I have to approve every salaried person we hire anywhere in the world.”
