US Economic Outlook Dismal

The outlook for the US economy has taken a turn for the worse among business leaders who see a drop in sales, capital spending, and new hiring. The gloomy outlook should be no surprise given the growing weakness in consumer confidence and spending.

The business survey covered the third calendar quarter of 2011 and was conducted by the Business Roundtable. Compared with the survey taken during the second quarter, businesses are expecting a significantly weaker third quarter.

Only 65% of those surveyed expected to increase sales in the next six months, compared with 87% last quarter. Only 32% expected capital spending to rise, compared with 61% three months ago. And only 36% expect to hire new employees, compared with 51% last quarter.

US GDP growth is now expected to reach just 1.8% in 2011, compared with a projected increase of 2.8% in the second quarter’s survey. That’s still more optimistic than the IMF, which earlier this month projected US GDP growth to reach just 1.5% in 2011 and 1.8% in 2012.

Business leaders surveyed by the Business Roundtable’s may finally be getting the message that private consumption is not making up for the loss of public expenditures, aka the Obama administration’s economic stimulus package. US consumers are simply not spending, keeping a lid on sales.

Lacking sales, companies don’t make capital investments that would expand production and lead to the hiring of new workers. Add to that the unprecedented productivity gains among US companies and there’s every reason to think that even more government stimulus might not turn the economy around.

Calls for cuts in federal spending, if heeded, will only make matters worse by putting even more people on the streets with little hope of finding other employment. The Obama administration’s call for another $400 billion or so in federal spending to create jobs may be risky in the long term, but absent private company hiring and investment today who else are you gonna call?

The Business Roundtable survey did not ask what leaders thought was their most pressing problem. Had it done so, there’s not much doubt that the answer would have been lack of sales. Without sales growth, everything else withers.

If the IMF projection on US GDP growth is right, business confidence is likely to fall even further when the Business Roundtable does its next survey. There’s no reason today to expect a different outcome.

Paul Ausick