Chief executives' confidence in the economy deteriorated in the third quarter, according to the Conference Board Inc., a nonprofit research association.
The Conference Board's measure of CEO confidence hit 50 in the third quarter, down from 62 in the second quarter. It was the lowest score since the first quarter of 2009, when the metric stood at 30.
"The overall slowdown in economic activity is causing CEO confidence to taper off," said Lynn Franco, director of the consumer-research center for the Conference Board. "It's a downshift from optimism to cautious territories."
Only 22% of CEOs surveyed thought economic conditions would improve in the next six months, and only 28% thought their own industries would improve. Within industries, utilities and business services were slightly more optimistic, but optimism slipped across the board, Franco said.
The last paragraph is key. The economy will never recover if 78% of CEOs are bearish on the future. This will keep capital spending depressed and prevent companies from hiring more workers, leading to a permanent unemployment rate of around 9%. It also pretty much ensures a prolonged period of economic stagnation where it feels more like a perpetual recession. The scenario is eerily similar to Japan where confidence was lost, and no one wanted to make a move until economic conditions improved. This led to a downward spiral as consumers and businesses retrenched, stopped spending, and dramatically reduced debt. Once the cycle begins, it is impossible for central banks to stop as was the case with the BOJ.
Money printing does not make people more optimistic about the economy. All it does is lead to higher commodity prices during a depressed economy. This makes consumers more negative and more likely to save money in order to compensate for higher food and energy prices. Consumer spending now accounts for almost 70% of GDP because we have outsourced our entire manufacturing sector to China. Without strong consumer spending, this economy has no chance. Ironically, if Bernanke wanted to stimulate consumer spending, he could attempt to craft monetary policy in a way which would lower commodity prices. This would mean reversing QE and raising interest rates to perhaps 3%. Commodities would fall sharply, increasing the amount of disposable income for consumers. Higher interest rates would allow retirees and people with money to earn more on their investments, which could be spent in the economy. This seems like a better idea than giving the banks a back door bailout through ZIRP. The banks borrow from the Fed, and the public at 0-0.2% and purchase 10 year treasuries at 2.5%. Rinse. Wash. Repeat. This activity does not stimulate anything except banks profits. Why on earth would banks increase lending, which has numerous risk when they could collect free money from the Fed? We have tried ZIRP for banks, and it has failed. It is time to try something different, which actually benefits people and not globalist banksters.
Black Swan Insights