Why you should care about what CEOs think about the economy

We got a sense of how the leaders of some of America’s biggest companies feel about the economy on Wednesday, CEO Economic Index courtesy of Business Roundtable. The short answer? Meh.

The quarterly survey of 143 Roundtable member CEOs, including Apple’s Tim Cook and Fox’s Lachlan Murdoch, predicted GDP growth of 1.5% this year. So again, kind of meh.

Although not economists in general, we pay close attention to what high-level CEOs say about the economy. But should we pay so much attention?

By his own admission, Harry Cramer didn’t have a great deal of economic clarity when he was CEO.

„I’d say, 'Hey, I think the dollar is going to be very strong, so we need to move more production internationally.’ And it turned out, you know, the dollar didn’t get stronger,” he said.

Cramer ran a Fortune 500 medical device manufacturer. He doesn’t think CEOs are any better at predicting the vagaries of the global economy than a trained economist.

But he added that they are not bad. This is because CEOs operate in the real world, with access to real-time data. Think how much Visa knows about consumer spending or Chevron about oil production.

„They’re on the ground, and they’re collecting data that we don’t get for two or three months after the government collects it and cleans it up,” said Dana Peterson, the Conference Board’s chief economist.

There is also a self-fulfilling aspect to CEO predictions. If a CEO thinks we’re headed for a recession, they might hold back on hiring or building that factory. But Fitch Ratings economist Olu Sonola cautions against putting too much stock in how CEOs of giant corporations feel — after all, they’re not the entire economy.

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„Small businesses are very, very important to what’s going on in this economy,” he said. „You know, you’re talking about 40% of output, employment and so on.”

Sonola said CEOs are also more optimistic than economists. You know what they say: the future looks so bright from that corporate jet window.

There’s a lot going on in the world. After all, the market is here for you.

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