The OECD Business Confidence Index

Business confidence is an important leading indicator as it helps in discerning near-term trends in output and economic activity. The above chart displays the OECD’s Business Confidence Index (BCI) for the United States from January 1, 1980 onward. The gray bars represent recessionary periods as determined retrospectively by the NBER.

Levels below 100 on the OECD business confidence index (BCI) suggest more pessimism regarding future business performance. The OECD series is based on the Institute for Supply Management’s Purchasing Manager’s Index. The OECD converts the series from a diffusion index into a net balance (%).

The OECD BCI measures sentiment among purchasing and supply executives in the manufacturing sector. Despite frequent claims to the contrary, manufacturing remains a tremendously important part of the U.S. economy. It is the country’s largest source of innovation, helps to reduce the trade deficit and is central to promoting environmental sustainability.

In Q4 of 2021, manufacturing comprised 11.3% of value added (GDP). The U.S. produces 16.8% of the world’s manufacturing output, making it the world’s second largest manufacturer behind Chin. While manufacturing has declined in terms of nominal GDP, it has remained fairly constant in real terms.

The manufacturing sector is also important from an employment perspective. Jobs in manufacturing total around 12.8 million, or 8.4% of total employment. While that figure is down substantially from when manufacturing was the leading sector in the U.S., it remains the 5th largest sector in terms of employment. Moreover, manufacturing sector jobs tend to provide higher wages and benefits than jobs in other sectors.