Directors are Optimistic about the Economy

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If anyone is in a strong position to assess the state of the economy, it is the men and women who serve in the nation’s boardrooms.  And they are offering some encouraging words.

The National Association of Corporate Directors (NACD) just released the most recent finding of its Board Confidence Index (BCI), a snapshot of the health of the economy as seen through the prism of corporate directors. The findings, covering the 4th quarter of 2010, show that U.S. corporate directors are confident about the strength of the economy as 2011 unfolds. The 64.4 confidence rating recorded in the latest BCI represents nearly a 14-point increase over the previous quarter in 2010. The findings come as other positive indicators emerge in the economy, including rising corporate profits and a rebounding stock market.

As the only economic measure of its kind, NACD’s BCI is a strong barometer of economic recovery because it is based on the opinions of 370 leading corporate directors, as well as the plans they say their organizations have for the future. Conducted in conjunction with leadership advisory and search firm Heidrick & Struggles and executive compensation consulting firm Pearl Meyer & Partners, the latest survey predicts economic growth over the long term, suggesting that the fear of a double-dip recession has lifted among corporate directors. For example, nearly three-fourths of the directors surveyed expect economic improvement a year from now.

The confidence levels were not same for every industry. In the information technology and utilities industries, directors say that their companies will do better than the overall economy over the next year. Comparatively, more directors in the healthcare sector expect their industry to do “moderately worse” in that same period. On the other hand, directors from the materials and telecommunications industries largely felt their industries would mirror the overall markets.

The survey also offered a somewhat promising outlook for the labor market: 42.3% of companies with revenue under $1 billion said they expect to do more hiring, and 34.4% of companies with revenue above $10 billion expect to add workers. Companies with revenue greater than $1B and less than $10B were less optimistic about the future state of their industries.

But in the short term, there is uncertainty. That may account for the muddled picture of the job market that emerged when the Labor Department recently reported that the economy added a mere 36,000 jobs in January, even as the unemployment rate dropped to 9 percent, the lowest rate since April 2009.

We’ll have to look for the next quarterly BCI—results expected in early May 2011— to see if that uncertainty still exists.

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