The 20 point drop in the Vistage CEO Confidence Index this year is shocking, but not unexpected. Vistage CEOs feel that they are the victims of a lackluster economy and a government that is ineffective at offering any meaningful stimulus. In fact, 79% of CEOs fear that the fundamentals of our sluggish economy will remain the same or get worse.
Economists have long understood that our thinking about the economy is governed by emotion. U.S. history is riddled with periods of growth and decline steered by the mood of the nation.
My generation grew up with a relative level of stability. We are simply not accustomed to the notion of “economic uncertainty” and we are not very happy about it. As a result, we have the tendency to overreact to stimuli in the form of collective euphoria or collective despair. This emotional response explains the nature of bubbles, as we all race to adhere to the conventional wisdom of the moment.
Today’s wisdom is that we should be scared…about sluggish growth, high raw material prices, health care costs, China, the Federal deficit, taxation and lots of other things. You know our psyche is a bit fragile when people are worried about inflation and deflation at the same time.
Our thinking often crystalizes around “the economic cycle,” which is something of a misnomer. Every business participates in this broader cycle, as well as a monetary cycle, industry cycle and company life cycle. The economy itself is merely a component in a spider-web of stressors that can be triggered by a myriad of forces from around the world.
Our expectations seem unrealistic, framed during a time when banks overleveraged, real estate was overpriced and stock market multiples were in the stratosphere.
The reality is that our economy is still growing (although perhaps in tepid fashion). Forecasts are for GNP growth of 1-2% for the reminder of 2011. When our GNP is growing at 4% we are bulls, but at 2% we are bears. This meager difference illustrates that our fear is based on perception and is somewhat irrational. It is like the fear of flying: one knows that statistically there is virtually zero chance of a crash, yet to some, the fear is quite real.
Perhaps what we really have to fear is fear itself. We should not be scared of a 2% variance, we should embrace it. As mentioned, 79% of Vistage CEOs surveyed believe the economy will “get worse or stay the same next year,” but 92% believe their revenues will remain flat or grow next year. In other words, Vistage members believe they will outperform the market (which has been proven over time). In many instances, it will be the confidence of the CEO that will drive the level of investment businesses make, which will in turn either be the impetus for growth or maintain mediocrity.
Of the CEOs surveyed, 41% believe that prices of their products or services will rise next year. The potential for rising raw material and energy prices in 2012 could actually be a boon to vendors who are posturing to raise prices.
It is time to reset expectations with our customers, vendors, employees and ourselves. Within this data, there is plenty of salt, but perhaps there are a few grains of sugar as well.
A good leader must exude confidence in his or her business every day. If you don’t see the value in your products and services, no one else will. When the competition is weak, it is time to attack. Let your competitors have the scarcity mindset, while you focus on the strategic gambits that will grow your business and create sustainable competitive advantage. We will get our 2% back some day—we just need to be a little patient.