CFO

“Optimism reached its lowest point since the study launched it’s optimism index six years ago. Pessimists outnumber optimists by a nine-to-one margin, with 72 percent of finance chiefs more pessimistic about the U.S. economy than they were last quarter. Just 8 percent more optimistic.”

I completely understand the slide in optimism as compared to last quarter- but how severe is this? The lack of confidence seems driven by specific concerns:

“Weak consumer demand and turmoil in the credit and housing markets are the top macro-concerns of top finance executives. The high cost of labor ranked as the top internal concern.

Credit conditions have directly hurt 35 percent of companies through decreased availability of credit and higher interest rates (up 118 basis points on average). Sixty percent of the companies have put off expansion plans in response to credit market unrest.”

The good news is that 53% of those polled think that the US economy will hit bottom and begin an upturn by early to mid 2009 or sooner. I’m not sure what they base this on other than this is a mild downturn that can be handled by an underlying strong economic base.

Do you think we are in a recession? How much is this a confidence game vs. real structural problems?

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Post from: EveryJoe

CFOs Losing Confidence: Is This a Self Fulfilling Prophecy?

“It’s going to be a very bad recession, perhaps the worst I’ve seen in the 46 years I’ve been working….We have too many sectors going south all at once….I frankly don’t see many positive signs right now, we are looking at a really nasty economic situation.”

He seems so sure of his prediction yet admits complexity in the derivatives market that makes it difficult to know what will happen:

“These instruments are so complex, and no one knows whether their counterparty is good for them or not.”

Responding to a question about a potential recession’s length and severity York said he didn’t think a downturn was “forecastable, in part because we don’t know what all these counterparties are.”

So- the economic downturn isn’t “forecastable”? Yet a man of York’s stature has no problem saying “it’s going to be a very bad recession”. Such predictions are very damaging to executive and consumer confidence. Saying later, under questioning, that what you predict isn’t forecastable doesn’t absolve you of responsibility for the effect of your pronouncements.

How do you feel about York’s comments? Are they irresponsible? Should he have been more careful to include “not forecastable” comments in the body of his speech? Do such statements have an effect on the economy? What is the role of confidence in the economy?

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Post from: EveryJoe

“A Long, Ugly, Deep Recession”??