U.S. CEOs and consumers differ widely on their views of the economy. What does that mean?
With a record high stock market and rising incomes, as well as record low unemployment and mortgage interest rates below four percent, the overall picture of the economy looks rather positive. Not surprisingly, most American consumers think the economy is doing pretty well.
American CEOs, on the other hand, are more skeptical. In fact, the perception gap between the two groups has never been wider.
Who is right?
Trade War Hurting Confidence
One could argue CEOs have a much more accurate reading on the future of the economy although the future hasnt arrived yet. Thats exactly whats going on with U.S. corporate leaders. The giant panda in the room is the continuing erosion of confidence brought about by the trade war with China.
CEO pessimism is confirmed by a recent survey showing CEO confidence falling to a 34 in the third quarter of this year, down from a 43 in the second quarter. A score of 50 or above indicates a positive outlook by CEOs.
Is that pessimism justified?
The Trade War
According to the latest news, phase one of the negotiations is almost complete. How much of that is hype and how much is reality is not yet clear. But unfortunately, getting firm terms—let alone real action—in trade agreements with China has proven elusive.
The latest round of “good news” about tariff relief being imminent notwithstanding, much more on the trade front would have to occur to change the current economic trajectory. But first and foremost, at even a basic level, an enforceable agreement between the United States and China has to be signed and sealed and put into action.
That hasnt happened yet. News reports continue to tell us that it almost has, but not yet. Just as important, though, the deal has to be large enough to have a real impact on trade imbalances and jobs. Both of these pieces are still missing.
A Healthy Skepticism Is Warranted
There are a few other reasons why skepticism is warranted. For one, its not certain the current agreement about having some tariffs removed will ever be signed.
For another, the signing date between U.S. and Chinese trade officials keeps getting moved. Its also just as likely some of the terms are changing as well. That may a be sign that more tariff relief is being negotiated or that less relief, or even none, is on the horizon.
Whats more, as the European Union has recently discovered, even signed agreements with China are literally a coin toss as to whether theyre implemented. According to the European Union Chamber of Commerce, nearly half of the trade deals China signed in 2018 have yet to materialize.
Its certainly likely that U.S. CEOs are well aware of the less-than-certain outcomes of new trade deals signed with China. This is particularly relevant to the forced technology transfers that have greatly benefited Chinas economy over the past decades.
Unfortunately, China continues to resist any fundamental changes in its industrial and technology policies. Thats a critical sticking point. Lack of progress will result in a fourth round of tariffs by mid-December. Perhaps thats what CEOs are expecting.
Consumers, Not CEOs, Drive the Economy
On the flip side of things, consumer confidence and behavior are what drive the U.S. economy. Making up almost 70 percent of U.S. GDP, consumers are much more confident about their economic future than CEOs. Even though it has dipped slightly from September to October, from 126.3 to 125.9, consumers confidence remains high, as does consumer spending.
As a result, GDP continues to grow, even Read More – Source