Business Confidence Takes Another Blow

Business confidence has suffered another setback, as indicated by a National Association of Business Economists report of cuts in its member forecasts for Q4 GDP. The news comes as a number of other comments by economists have turned positive and the stock market has turned sharply higher. These predictions have not changed the plans of American companies, which have remained worried about the near-term future.

The NABE’s October 2011 Industry Survey showed that: “Expectations for economic growth in 2011 deteriorated sharply. A full 84% of NABE panelists now expect real GDP to advance at a pace of 2% or less from the fourth quarter of 2010 to the fourth quarter of 2011, up from only 23% in July.”

Corporations often use forecasts by NABE to plan expenditures and predict sales. Management at large companies likely will use the new data to make conservative plans for the balance of this year and into the next.

Coincidentally, the Wall Street Journal reported that a significant number of America’s largest companies plan to lower costs further despite sharp cuts already made over the course of the recession. The paper’s writers said, “In a sign that executives see a rockier road ahead, many manufacturers are setting aside money to fund moves aimed at cutting costs and streamlining operations. Those steps could include job cuts and factory closures, as businesses seek to pare expenses ahead of what is widely expected to be slow revenue growth in 2012.”

The economy has reached a point at which company profits and a belief that the EU crisis will be solved tell one thing and the actions of corporate management say another. The risks of another drop in American GDP may have fallen, but that has not engendered enough confidence at large corporations to rebuild their jobs bases. The trouble likely will be more severe at smaller businesses that continue to have limited access to capital.

This is not the first time in recent history that the expectations of economists have diverged from those of business. A year ago, economist expected GDP to begin to improve. Businesses did not believe that sentiment and continued to lay off workers even as their businesses began to recover from 2008 and 2009.

The lesson from this new shift in forecasts by the National Association of Business Economists is that, no matter what experts predict, businesses have remained concerned enough about the future that they are not inclined to add new jobs.

Douglas A. McIntyre