Every kid knows the story of Peter Pan.
It’s a classic tale of a brash, mischievous boy who can fly and magically refuses to grow up.
Peter always is the first one to toot his own horn. His undaunted confidence inspires the ever-skeptical Wendy and her equally dour brothers to fly away with him on his quest to defeat Hook.
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For Pan, confidence is everything. Without it, he’s just another ordinary boy in green tights with a dull wooden sword.
So it goes for the CEOs of America’s largest corporations.
A little more than a year ago, they were world-beaters. Profits were soaring. The stock market was at record highs.
Today, they look like the Lost Boys of Neverland.
A Further Remedy Is Required
Confidence among U.S. chief executive officers retreated in the first quarter to the lowest ebb in at least seven years; showing that it may take more than massive government spending to renew their optimism.
In a recent survey by the Business Roundtable measuring the confidence of CEOs from the nation’s largest companies, the economic outlook index sank to minus 5, the lowest level since the series began in 2002.
This confidence measurement is down from the already low 16.5 reading in the fourth quarter of last year. Readings can range from 150 to minus 50. Anything less than 50 signals pessimism. The gloomier outlook indicates company chiefs aren’t convinced the Obama administration’s $787 billion stimulus plan or Federal Reserve measures to pump trillions of dollars into the financial system to boost borrowing and spending will pay off. By margins of at least 2-to-1, executives said sales, investment and employment would drop over the next six months.
This overarching pessimism is reflected in the stock market numbers as major public companies are about to kick off the earnings season. The stock market is down for the second day in row. The dollar has weakened significantly against both the yen and Euro.
Alcoa, the nation’s largest aluminum manufacturer, and the first to report earnings, is expected to lead a parade of losses by U.S. companies. Even though most companies have aggressively engaged in a variety of cost-cutting initiatives, the earnings projections still look grim.
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I’ll Have One Cup of Confidence
The heavy pall shrouding American business confidence has been deepened by pronouncements from leading investors like billionaire hedge-fund manager George Soros who predicted that the rebound in equities will not last.
At this point, the earnings numbers for the first quarter will be a gut-check for the U.S. business community.
If the numbers are as dreadful as is widely expected, then the level of confidence among America’s business leaders likely will slip lower, prolonging the malaise and further delaying the recovery. The business community needs its own Pan. They need someone like the ebullient Lee Iaccoca who can step up and rally the troops.
George Soros may be right; but he needs to keep it to himself. We’ve got plenty of pessimism. What we all need right now is a little confidence.
The federal government already is spending trillions of dollars to plug the holes and jumpstart the engines of commerce. Now U.S. business leaders must do their part.
Come on, guys. It’s time to think happy thoughts.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
