Business Confidence Plummets
The Bay Area Council today released its latest Business Confidence Survey, with Bay Area CEOs and executives expressing strong disappointment with the pace of recovery over the past six months and offering an equally unsettled outlook for significant improvement in the coming six months.
The business confidence index – the number that distills the survey findings – registered at 51 out of 100, down 11 points from the spring 2011 survey and the biggest quarterly drop since 2002. A reading over 50 signals positive economic times, while below 50 is negative. The previous Survey showed the index reading at 62. One year ago, the reading registered 56. The index reached its all-time low of 31 in January 2009.
“Bay Area business leaders continue to be more optimistic about our regional economy than the national economy, but the volatility of the broader economy and the faltering recovery are taking a heavy toll on our confidence locally,” said Jim Wunderman, President and CEO of the Bay Area Council. “We’ve got our work cut out for us to stay focused on what we can do as a region to restore consumer confidence, improve the climate for business and create jobs.”
The responses of the almost 450 CEOs and top executives in the nine Bay Area counties surveyed show that overall, 31% think Bay Area economic conditions are moderately or substantially better than six months ago, while 44% say conditions are the same and 24% think they’re worse.
Business leaders have similarly cooled in their outlook for improvement locally, with just 35% saying they expect Bay Area economic conditions to get better over the next six months. Many of those whose attitudes have shifted now believe economic conditions will generally remain the same or worsen slightly over the coming months.
The Survey indicates that the decrease in business confidence translates to stagnation in growing jobs – 60% of executives surveyed predict their workforce will stay the same over the next six months, a 7 point increase from the last quarter. The share of businesses that plan to increase jobs dropped 8 points from earlier this year to 21%, while those planning to decrease jobs rose 4 points to 17%. Rising healthcare costs appeared to weigh on job creation, with 92% of executives saying they expect those costs to increase by at least a little and 48% saying rising healthcare costs would hurt their ability to hire.
“Controlling health care cost is one of the Council’s top priorities as we work with state legislators and others to influence how national healthcare reform gets implemented here in California,” Wunderman said. “But that’s just one part of the equation. As a region and as a state, we must increase our investments in infrastructure projects, expand trade and exports and make sensible changes to regulations that remove obstacles to economic growth.”
Across industries views about the regional economy aren’t much better, with leisure and hospitality businesses expressing the highest level of confidence. By county, business leaders in San Francisco, San Mateo and Santa Clara are the most upbeat about economic conditions, with 25% in San Francisco expecting to add jobs and 27% in both San Mateo and Santa Clara counties looking to increase their workforces. In the government sector, 46% of public officials said they expect to shed jobs.
“The drop in business confidence in the Bay Area is consistent with what we’re seeing nationwide, although our region’s comparative economic advantages offer a ray of sunshine,” said Lenny Mendonca, a member of the Council’s Executive Committee and a director at McKinsey & Company. “It’s those comparative advantages – access to capital, a well-educated workforce, proximity to global markets and strong entrepreneurial spirit – that we must continue to cultivate.”