Who says Americans are dummies when it comes to math? Turns out, you don’t need an MBA to figure out just how bad this economy is; regardless what the spinmeisters in Washington want us to believe.

Two completely separate surveys found that corporate financial officers and consumers are feeling exactly the same way about the economy: nervous.

William Soward, CEO of business-software maker Adaptive Planning, says the level of anxiety among CFOs and comptrollers fell to levels seen in early 2009--six months after the financial markets imploded thanks to the subprime lending mess.

“We expected our second-quarter survey [this year] to show more optimism. But we saw just the opposite,” Soward says.

He says financial decision-makers across small, medium and large companies are “less confident and more risk-averse” than at the end of last year.

And those sentiments aren’t alone.

Consumer Reports’ Consumer Sentiment Index “has been totally flat” since October of last year, says research director Ed Farrell.

Worst of all, it remains in negative territory, which means in Farrell’s words, “It’s not even at the point where half the people feel good about the situation and half feel lousy.” He says the overall sentiment is that people “are not very optimistic…folks are depressed.”

The fact that both groups, corporate finance officers and consumers, are feeling nervous does not bode well for either an economic recovery or an improvement in the unemployment rate.  In fact, they’re interdependent.

The top three concerns mentioned by CFO’s are:

  1. Overall product demand;
  2. When will we see employment pick up?;
  3. How much will the new health-care law cost my company? (1)

Interestingly, consumers have similar worries. They might not understand exactly why Bear Sterns went under, but they know the government spent trillions in taxpayer money for the bailout of the financial sector and last year’s hastily-passed “stimulus” package. And yet, if anything, many Americans are personally in worse shape financially than they were two years ago; credit card rates are higher, it’s tougher to get a loan, free checking could soon be a thing of the past, taxes are going up and heaven help you if you lost your job.(2) 

While more people are struggling to pay health-care costs (mainly because they’ve lost their jobs), there’s also a high level of uncertainty about how they’ll be affected by health-care reform.

 “People don’t run their lives based on technical data,” says Farrell, “but on what they see around them.  The consumer looks to the right and sees his neighbor isn’t going to work. He turns left and sees his other neighbor isn’t going to work. And he doesn’t feel too good about his own situation. [As a result,] he’s not going to be loosening his purse strings.”

And this brings us right back to worry No. 1 for company finance executives.

Since consumer spending represents about 70% of gross domestic product, if consumers are reluctant to spend because they’re unemployed or worried about losing their jobs, companies become reluctant to hire because they won’t be able to sell what they make. 

It’s a self-fulfilling prophecy!

Soward says because employers have no idea what the new health-care law is going to cost them, they’re reluctant to add to their payrolls.

In fact, experts expect continued lay-offs. Adaptive Planning’s latest poll found that “forty-four percent [of financial executives who work at] companies with more than $200 million in revenues expect job cuts at their own companies by the end of this year.”

According to Farrell, “People are so uncertain about the future, it’s depressing a lot of activity in the economy.  It’s definitely a factor in keeping this recession going.”

 

1. Surprisingly, No. 4 is about the ramifications of the European debt crisis- a reminder, says Soward, of “how inter-connected our economy is globally.”

2. Not to mention the poor folks whose livelihoods and neighborhoods are affected by the disastrous oil spill in the Gulf of Mexico.

 

Ms. Buckner is a Retirement and Financial Planning Specialist at Franklin Templeton Investments. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content. 

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