Who cares what CEOs think about the economy? You probably should.
Who cares what CEOs think about the economy? You probably should.
We got a sense of how leaders at some of the biggest U.S. companies are feeling about the economy on Wednesday, courtesy of the Business Roundtable’s CEO Economic Index. Short answer? Meh.
The quarterly survey of 143 Roundtable member CEOs, which include the likes of Apple’s Tim Cook and Fox’s Lachlan Murdoch, predicted gross domestic product growth of 1.5% this year. So again, kind of meh.
We tend to pay a lot of attention to what high-profile CEOs say about the economy, even though they’re typically not economists. But should we be paying this much attention?
By his own admission, Harry Kraemer wasn’t a macroeconomic clairvoyant back when he was a CEO.
“I would say, ‘Hey, I think that the dollar is going to get a lot stronger, and so maybe we ought to be moving more production internationally.’ And it turned out, you know, the dollar didn’t get a lot stronger,” he said.
Kraemer ran a medical device manufacturer that’s a Fortune 500 company. He doesn’t think CEOs are any better at predicting the vagaries of the global economy than, say, a trained economist.
But they’re not any worse either, he added. That’s partly because CEOs operate in the real world, with access to real-time data. Just think about how much Visa knows about consumer spending or Chevron knows about oil production.
“They’re on the ground, and they’re gathering data as well that we may not get for two or three months after the government has collected it and cleaned it,” said Dana Peterson, chief economist with The Conference Board.
There’s also a self-fulfilling aspect to CEO predictions. If a CEO thinks we’re heading toward recession, they may hold back on hiring or building that factory. But Fitch Ratings economist Olu Sonola warns us not to put too much stock into how the CEOs of gigantic corporations are feeling — after all, they’re not the whole economy.
“Small businesses are very, very important to what’s going on in this economy,” he said. “You know, you’re talking 40% of output, employment and the like.”
Sonola added that CEOs also tend to be more optimistic than economists. You know what they say: The future looks pretty bright from the window of that corporate jet.
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