Some CEOs Say They Are Slowing Down in Hiring

November marked the fourth month in a row that the CEO Index continued to fall. The CEO Index is a measure of confidence among CEO's and can be considered a tool to measure whether we are headed for or are already in a recession. CEO's are overwhelmingly pessimistic about the dollar, housing and the economy in general. A survey taken in July of this year by Manpower shows that some CEOs are saying that they are slowing down hiring employees in particular fields like mining, transportation /public utilities sectors. However, some see no change in construction, manufacturing, transportation and services. In the same survey it pointed out in July that twenty seven per cent of CEO's said they were increasing their man power going forward. However, last year the fourth quarter survey showed twenty eight per cent of CEO's said they were increasing man power for 2007. The CEO Index that came out in November shows since August we are showing a moderate concern for holding off hiring new employees. At the same time, there is still a main challenge of finding qualified staff and holding onto them.

The strongest hiring area and field is in the servicing area in the Western states. However, most CEOs say that 2008 first quarter will give them a better idea of how things look after more information comes out on the sub prime crisis.

The reason that this is important to the stock market is because when quarterly earnings come out from companies; the CEOs' forecast what the expected growth will be going forward in their companies. Typically, the stock market rises when earnings are reported either in line or with higher expectations of what Wall Street analysts' forecast. When the forecasts from the CEOs are positive the market rewards them increasing their share prices. If the CEO starts bringing in their concerns on growth and adjusts downward the expectation of the company's earnings the market punishes them by reducing the share price of the company. If collectively CEOs forecasts a negative viewpoint of their companies due to weakness of the economy, it is easy to assume this will be reflected in selling pressure on Wall Street.

Now, does that suggest it will be a bad in 2008 for stocks if we hear a lot of negative forecasts for companies? Not necessarily. It would mean recession however; stocks can rise during a recession. They mainly rise when there is a "wall of worry".

Now, there would be adjustments on earnings downward which again causes stocks to sell. However, if too much negativism comes into the market and the stocks sell off too extreme, depending on other factors, you could see stocks eventually being bought on bad news. It's all relative to how much liquidity that is in the market. If we were to find ourselves in a credit crunch in 2008, then that would mean liquidity would dry up, and it would be difficult for stocks to rise. Likewise, it's also relative to how low interest rates will be because if rates become too low, fundamentally the risk to the reward could be better going into stocks rather than bonds due to an adjusted price to earnings ratio (hyperlink this) on companies. So the bottom line is this; we will see a choppy 2008 if CEOs continue to indicate pessimistic concerns about our economic conditions. Just watch interest rates and see if we become so oversold that stocks become cheap to the environment. It's normally when no one wants to own stocks due to excessive pessimism is when you want to buy.