Economic Forecasts and Why They Should Not be Trusted

October 12, 2010 06:58

More inconvenient information appears regularly that is contradictory to the governmental propaganda that we are in a recovery. The latest is the decline in CEO’ confidence.

Monty Pelerine’s World

More inconvenient information appears regularly that is contradictory to the governmental propaganda that we are in a recovery. The latest is the decline in CEO’ confidence.

Economists vs Businessmen

I suppose there is a chance that some egg-headed economists know more than actual chief operating officers who run individual companies, although the absurdity of that on its face, at least with respect to individual companies, should be apparent.

By extension if CEOs, across the board, believe that the outlook for their individual companies is not favorable, it is difficult to imagine how any economist could claim that his cracked crystal ball shows favorable conditions ahead. It is unlikely that adding a collection of negatives together can result in a positive.

One must decide whether to bet one’s money, and in which way, based on some expectation of the future. Judgments on the future are readily available and conflicting. Economists can be rented for any opinion. They are bought and paid for in the same manner as PR specialists.

Economists generally have no money at risk. If they are wrong, they may lose reputation. At this point, economists have little of that left to lose. Listening to them is akin to playing poker with someone who arrives with no or little money.

If I am going to risk my money, it will be based on the opinion of others that have significant “skin in the game.” In this situation, those people are the CEOs, not economists. There are no guarantees against losses because the future is always uncertain. However, those with money at risk have to be correct most of the time or they disappear.

Economists, on the other hand, can be wrong most of the time and still go on forever. Talk is cheap and there are no consequences for their inaccurate projections.

Business’ Evaluation of The Future

The survey results as presented by Financial Armageddon:

I wonder how many people are going to have to say the economy is in trouble before equity investors finally sit up and take notice? The latest group to voice their concerns includes those individuals who presumably have a better handle on what is happening on Main Street’s front lines than the crew that is addicted to easy money, contagious fantasizing, and aggressive speculation:

“CEO Confidence Declines, The Conference Board Reports” (PRNewswire) [italics mine]

The Conference Board Measure of CEO Confidence™, which was unchanged in the second quarter of 2010, declined in the third quarter. The Measure now reads 50, down from 62 last quarter (a reading of more than 50 points reflects more positive than negative responses).

Says Lynn Franco, Director of The Conference Board Consumer Research Center: “CEO confidence has cooled considerably in the second half of 2010, as has the U.S. economy. And, expectations are that this slow pace of economic growth will continue into early 2011. Regarding capital spending plans, the news was a bit more favorable with three out of every ten chief executives saying they had increased capital spending plans since the start of this year, a significant improvement from last year when only 7 percent reported increases.”

CEOs’ appraisal of current economic conditions was much less favorable in the third quarter. Less than one-third say conditions have improved compared to six months ago, down from about two-thirds last quarter. In assessing their own industries, business leaders’ appraisal was also considerably less positive. Now, only 38 percent say conditions are better, compared with 61 percent last quarter.

CEOs are much more pessimistic about the short-term outlookOnly 22 percent of business leaders expect economic conditions to improve in the next six months, down from 48 percent last quarter. Expectations for their own industries are also downbeat, with about 28 percent of CEOs anticipating an improvement in the months ahead, down from 43 percent last quarter.

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