Chief Executives Start Embracing Recovery

Editor's note: This is a special bonus column for TheStreet.com readers. Anirvan Banerji's column appeared Jan. 8 on RealMoney.com. To sign up for RealMoney, where you can read his commentary first, please click here for a free trial.

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Six months ago, I predicted a lopsided recovery: a bigger one in GDP than in jobs. At the time, popular opinion was split between those who were optimistic about GDP and jobs, and those who were pessimistic about both.

Since then, we've seen GDP growth rocket to a two-decade high. Yet even after job growth turned positive last summer, it languished: Just 82,000 payroll jobs were created, on average, each month from August through November 2003. This is squarely in line with my earlier forecast.

But the outlook has changed.

The Persistence of Pessimism

What we've experienced for the last two years has been widely derided as a jobless recovery. As I've pointed out, the permanent loss of manufacturing jobs to China is partly responsible for the unusual nature of this recovery. But another factor has been the persistent pessimism of top executives, even as the economy has kept growing.

There are many who think that because CEOs oversee the actual operations of companies, they have a good feel for where the economy is headed. That's not necessarily the case. To understand how misguided their views can be, just think back to early 2001, when the economy was on the cusp of a recession. Yet many CEOs, especially in the information technology sector, kept hiring and adding capacity with unflagging optimism even as the bottom fell out of their markets.

After the bust, a pall of pessimism took hold. In 2001 and 2002, CEOs had been misled by the promise of a "second-half recovery." In 2003, they were determined to be skeptical of such bullish forecasts.

% of CEOs Who Think Economy Is Growing

Source: PricewaterhouseCoopers

As the chart shows, for two years, even as GDP kept rising, the vast majority of top executives refused to acknowledge the reality of economic growth. It's only in the latest quarter that a majority (60%) of these CEOs finally decided the economy was growing -- up from just 26% in the prior quarter.