CEO confidence plunges on credit concerns.

THE CEO CONFIDENCE INDEX PLUNGED in August as CEOs reacted to growing concerns over the U.S. Credit Markets. According to 203 top executives surveyed, the top economic indicator fell by 24.3 points to 145.0, far and away the largest one month drop since tracking of executive sentiment began in October 2002. All component indices, which ask questions about certain subsegments of the economy, fell by record amounts as well.

The Future Confidence Index, which tracks executive confidence over the next quarter and beyond, fell the most relative to its current level. Falling by over 17 percent from 138.1 to 114.0 in August, executive faith in the future direction of the economy could be described as lukewarm at best. CEOs expressed high levels of worry over the future direction of the economy; almost a fifth of respondents said they expect the economy to experience either gradual or rapid decline over the next quarter. This was the highest level of CEO negative sentiment expressed since 2002. Kevin Moriarty, president of Infinity Automation of Long Island, N.Y., said, "There is a tidal wave heading our way and we must get prepared."

As the Dow Jones Industrial Average lost over 1,000 points in the weeks between late July and mid-August, CEOs watched and expressed concern about the strength of current investment opportunities. The Investment Conditions Index, which tracks executive confidence in investment opportunities and the levels of capital spending at companies, fell by over 15 percent this month. Additionally, 18 percent of CEOs rated current investment opportunities as "bad," the highest level to do so in more than two years.

CEOs were also asked--directly after the Dow Jones went from above 14,000 to below 13,000 in less than a month--what factors actually influence their confidence. Credit market performance overwhelmingly ranked uppermost by three-fourths of all respondents. As one CEO explained, "Risk should have been priced into the subprime paper, but it was not."

Nonetheless, many CEOs still feel their businesses and many areas of the economy are fundamentally sound. Almost 46 percent of those responding said that the financial performance of their own companies increased their confidence this month, and an additional 13 percent said that it "significantly" increased their confidence.