Using the Business Roundtable’s CEO Economic Index on Wednesday, we got a glimpse of how executives at some of the largest US companies think about the economy. Short answer? meh
The quarterly survey of 143 CEOs from the Roundtable members, including Apple’s Tim Cook and Fox’s Lachlan Murdoch, forecast GDP growth of 1.5% this year. So again, kinda meh.
We tend to pay close attention to what senior CEOs say about the economy, even if they aren’t typically economists. But should we pay so much attention?
According to his own statements, Harry Kraemer as CEO was not a macroeconomic clairvoyant.
“I would say, ‘Hey, I think the dollar is going to get a lot stronger, so maybe we should move more production offshore.’ And it turns out the dollar didn’t get much stronger,” he said.
Kraemer managed a medical device manufacturer that is one of the Fortune 500 companies. He doesn’t think CEOs are any better at predicting the whims of the world economy than, say, a trained economist.
But they are no worse either, he added. That’s partly because CEOs operate in the real world and have access to real-time data. Just think how much Visa knows about consumer spending or Chevron about oil production.
“They’re on the ground and they’re also collecting data that we might not get until two or three months after the government collects and cleans it,” said Dana Peterson, chief economist at the Conference Board.
CEO predictions also have a self-fulfilling aspect. If a CEO thinks we’re headed for a recession, he might hold back on hiring or building that factory. But Olu Sonola, an economist at Fitch Ratings, warns us not to put too much emphasis on the feelings of the CEOs of giant corporations – after all, they are not the entire economy.
“Small businesses are very, very important to what’s happening in this economy,” he said. “You know, you’re talking about 40% of production, employment and things like that.”
Sonola added that CEOs also tend to be more optimistic than economists. You know what they say: the future is looking pretty bright from the window of this corporate jet.
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