Thursday, January 24, 2008

US CFO Confidence Survey

I caught an interesting looking graph over at Swivel. It's a CFO Optimism index from - a joint effort between Duke University and CFO Magazine.

Optimism Index: Company vs. CFO Optimism Index Optimism Index: US economy

It's hard to read for those of us color-challenged (like myself), so for fellow sufferers, in 2007 the Company Optimism line is above the Economy one.

From this graph, it looks like optimism among CFOs has been falling for a while, but take a close look at 2007 - over the last few months of 2007 optimism in the US economy fell off a cliff, while optimism for their own company was not nearly hit as hard.

This makes sense. The last few months of 2007 were awash with sub-prime news and banks losing money hand-over-fist. You would have to be living under a rock to have missed it.

But the gap between how CFO's think this will affect their own company versus the economy at large is telling. They don't seem as confident to write off their own company's prospects, or simply aren't too sure how a subprime credit crunch in the financial markets will affect their bottom line. But they are convinced the economy is in the toilet.

My guess is if you indexed talk of 'recession' against the last few months of 2007 CFO confidence data, you would find a close correlation. CFOs read and listen to the media as much as the next person, and are no doubt swayed by what they hear. If the recession talk gets loud enough, they will believe it inevitable. Even if everything they are seeing in their own company's numbers looks solid.

Which feeds into my theory that the best way to enter a recession is to start talking about a recession.

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Aaron said...

The Economist recently had a piece that demonstrated by tracking mentions of the word 'recession' in print media, one could have successfully predicted the last four or so major economic downturns, dating back some 30 or so years. Not sure that 'prediction' is the term they should be using; nontheless, while I think it's safe to say that the market is inevitably 'honest,' it does show how suggestive (and fragile?) it can be in the short-term.

Paul Soldera said...

I agree. You can't have smoke without fire. The upside is that it probably works just as well in reverse - we can all talk ourselves out of a slump to some extent. I'll have to take a look at that Economist piece.