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CEOs see improving economy, still wary of hiring

The trading floor of the New York Stock Exchange is seen ahead of the closing bell in New York on March 5, 2013. REUTERS/Brendan McDermid
The trading floor of the New York Stock Exchange is seen ahead of the closing bell in New York on March 5, 2013. REUTERS/Brendan McDermid

By Scott Malone

(Reuters) - Chief executive officers' confidence in the economy rebounded in the first quarter, but they remained leery of taking on new workers at home, according to a survey released on Wednesday.

The Business Roundtable's CEO Economic Outlook Index rose to 81.0 in March from 65.6 in December, according to the quarterly survey, which was conducted before the recent sharp rise in the U.S. stock market. Any number above 50 indicates growth.

Officials with the group, whose members employ about 16 million people, blamed the continued wariness about hiring on uncertainty in Washington, where President Barack Obama's Democrats and the Republicans who control the House of Representatives have been squabbling for two years without reaching an agreement on how to reduce the $16.7 trillion federal debt.

"We are discouraged that we can't resolve some of the issues ... that relate to the framework of the economy, which are tax, fiscal, budgetary considerations," said Boeing Co CEO Jim McNerney, who chairs the Roundtable. "We keep lurching from one crisis to another there in D.C., which does put a little bit of a damper on investment, particularly long-term investment."

The CEOs' increased confidence reflected improved expectations for sales and plans to boost U.S. capital spending over the next six months.

But CEOs remained unlikely to add workers, with just 29 percent planning to boost U.S. employment over the next six months, the same percentage as in December. The slow recovery in hiring has been one of the biggest drags on the U.S. recovery from a recession that ended almost four years ago.

Unemployment in the United States has started to track downward in recent months. A report released on Friday showed it dropped to 7.7 percent in February from 7.9 percent in January, hitting its lowest level since December 2008.

In the first quarter, fewer CEOs said they were likely to cut jobs at home over the next six months. Just 25 percent said they planned to reduce headcount, down from 29 percent in December.

'DISCONNECT' BETWEEN MARKET, HIRING

McNerney acknowledged a "disconnect" between the CEOs' confidence and that of investors, who last week pushed the widely watched Dow Jones industrial average <.DJI> to an all-time high.

"There probably is a disconnect," McNerney said, "but I think economists would probably tell you that there is a lot of money coming into the stock market out of very low interest rate environments."

Across corporate America, CEOs are complaining that the federal budget battles have taken a toll on confidence.

In his annual letter to shareholders earlier this week, General Electric Co 's Jeff Immelt warned that questions about tax policy and spending cuts might hurt capital spending.

While leaders in Washington averted the "fiscal cliff" of automatic spending cuts that would otherwise have taken effect on January 1, the smaller mandatory reductions that took effect this month have worried CEOs, McNerney said.

"There might have been a sigh of relief," McNerney said, "but it's kind of like the trip to the gallows was pushed out two days."

Despite these worries, 72 percent of CEOs expect their companies' sales to rise in the next six months, up from 58 percent who expected that in December.

The percentage who plan to boost U.S. capital spending increased to 38 percent from 30 percent. Investing in new equipment can help companies to meet modest increases in demand without adding workers.

CEOs also modestly raised their expectations for growth in real U.S. gross domestic product, which they now expect to rise 2.1 percent this year, up from the 2.0 percent gain forecast in December.

The Roundtable surveyed 144 member CEOs from February 11 through March 1.

(Editing by Gerald E. McCormick and Lisa Von Ahn)

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