Board Confidence Index Drops in the Second Quarter
Amid reports on the Olympics and presidential race, the flagging economy has been firmly in the news this week. In the second quarter of 2012, U.S.economic growth slowed to an annual rate of 1.5 percent, even slower than its 2 percent growth in Q1 2012. This lack of growth suggests the economy is at risk of stalling, a sentiment echoed in NACD’s Board Confidence Index (BCI), which dropped over 8 points in the second quarter to 52.4. The BCI’s second lowest score since its inception in September 2011, this overall index denotes directors’ uncertain view of the state of the economy.
Since its introduction in 2010, NACD’s BCI has trended with peer indices—showing fluctuations and improvements, but generally not enough to support a fully recovered economy. The University of Michigan and Thomson Reuters’ measure of consumer sentiment for July followed suit, dropping to its lowest point since December 2011. However, after the Conference Board’s Consumer Confidence Index dropped to a five-month low in June, it regained several points in July, moving to 65.9 from 62.7. According to Richard Curtin, chief economist of the University of Michigan Consumer Sentiment Index, the continued decrease in confidence is the result of consumer expectations, specifically the belief that “current economic policies are incapable of solving the problems facing the economy.”
This lack of confidence in the government’s ability to address economic issues early is evident in the boardroom. When asked about the nation’s progress in the past three months, as well as expectations for the next three months, levels dropped below 50 points, indicating little confidence in the nation’s short-term prospects. Confidence in the economy’s progress over the last year took the largest hit—dropping from 64 in the first quarter to a slightly more than uncertain 56 in the second quarter. In its history, it is not unusual for director confidence in the short term to waver in the 50s. However, when long-term scores drop to this range, it is not uncommon for the overall index score to significantly drop.
Current fears of a stalled recovery are not going unnoticed, however. Following its two-day meeting this week, the Federal Reserve is prepared to launch another round of stimulus to bolster the economy. While the bank has not yet formally announced this intervention, if unemployment and growth continue on the current path, it is only a matter of time.