CEO confidence dips as U.S. companies brace for recession
CEO confidence in the US economy is weakening as poll results and comments from senior executives suggest a bleak outlook.
The Conference Board’s second-quarter CEO sentiment measure found that 57% expect the economy to experience a “very short, mild recession.” This is the fourth consecutive quarter of falling expectations.
According to the business research group’s regular survey, 61% of CEOs noted that general economic conditions were worse than six months ago, while 37% said conditions in their own industries were worse.
“CEO confidence weakened further in the second quarter as executives grappled with rising prices and supply chain challenges, exacerbated by war in Ukraine and renewed COVID restrictions in China. “said Dana M. Peterson, chief economist of the Conference Board, in a statement. “Expectations for future conditions were also bleak, with 60% of executives expecting the economy to deteriorate over the next six months, a sharp increase from the 23% who shared this view last quarter.”
A recession is defined as two consecutive quarters of negative economic growth, according to the National Bureau of Economic Research. But the Bureau has expanded its recession indicators by looking at four other key areas: payroll employment, industrial production, sales volume in manufacturing and trade, and inflation-adjusted personal income.
Business leaders have been open about their dismay at the economy in general.
Bob Bilbruck, CEO of Captjur, a technology and development services company, shared his colleagues’ pessimistic assessment of the economy.
“I think many CEOs like me know we’re in a recession. We also know that all is not rosy as the political class would have you believe.
He also thinks soaring gasoline prices, which hit a new record high of $4.622 a gallon on Tuesday, will force consumers to stop spending, which is bad news for the broader economy which represents the two-thirds of consumption.
“I think a lot of CEOs are digging in to weather the storm and actually see the deepening recession as a good thing,” Bilbruck added. “Money has been too easy for too long, it has had a very negative effect on the real economy. Wall Street loved it, but all good times come to an end – this time I think will be a bad time, kind of like 2008.”
Tesla and SpaceX CEO Elon Musk recently tweeted that a recession is “a good thing,” adding that an economic downturn could last up to 18 months.
“Yes, but it’s actually a good thing. It’s been raining money on fools for too long. Some bankruptcies have to happen,” he said.
“Companies that have inherently negative cash flows (i.e. value destroyers) must die, so that they stop consuming resources.”
Speaking at the Wall Street Journal’s Future of Everything festival earlier this month, Wells Fargo CEO Charlie Scharf admitted the country was headed for something of an economic downturn.
“I think it’s going to be difficult to avoid some kind of recession,” he told the conference.
“But I also understand the fact that everyone is so strong in this area, [which] should hopefully provide a cushion so that whatever recession, if there is one, is short and not so deep.
Morgan Stanley CEO James Gorman told shareholders at the company’s annual general meeting on Thursday that the odds of a recession were less than 50%.
Anthony Capuano, CEO of hotel chain Marriott International, told reporters at the World Economic Forum last week that “it looks like we are headed” for a recession.
Paul Knopp, the CEO of KPMG, revealed to Yahoo Finance Live that “we are on the lookout for a potential recession”.
“It’s not clear if this is going to happen in the United States or not. But it’s definitely something we’re watching closely,” he added.
But not all Corporate America executives think the sky is falling.
Best Buy CEO Corie Barry noted on a recent earnings call that the consumer electronics retailer ‘doesn’t expect a full recession’, although the company is ‘pricing in weaker demand’ .
Mansoor Al Mahmoud, CEO of the Qatar Investment Authority, told CNBC the fund isn’t as pessimistic as many business leaders around the world. However, if there is a contraction in the economy, “it will be a mild recession.”
Looking ahead, businesses, consumers and investors need to exercise caution in these conditions, advises Goldman Sachs CEO David Solomon.
Overall, Mike Davis, founding partner of Olive Tree Ridge, a multi-strategy asset management firm, says the next recession will be different from 2008, especially on the labor front.
“The unemployment rate is historically low. It’s very difficult to get great talent, to retain it and it becomes more expensive,” he said.
“This is not the first time that we find ourselves in a period of inflation. From a business perspective, I would spend time looking at the story. We are not alone.”
Who will survive?
Since the start of the pandemic more than two years ago, investors have been abuzz over internet companies, from video conferencing (Zoom) to home entertainment (Netflix).
This year, however, it was a whole different story. The tech selloff was brutal, with the Nasdaq Composite Index falling 25%. Many tech giants offered mediocre profits and provided weak advice.
In this type of environment, companies have to “really plan for the worst,” says Davis.
“I think we don’t even know where the bottom is yet, but a lot of people are trying to play the timing game,” Davis said. “I don’t think it’s the right decision at all. Things will get worse. »
Until corporate indicators consistently prove otherwise, it will be essential that private companies brace themselves, likening the situation to the classic fable “The Ant and the Grasshopper”.
“Money is the almighty,” he added.
Indeed, companies with healthy margins and producing physical things are back in full force. The FTSE 100 Index and the S&P/TSX Composite Index, benchmarks focused on commodities and industrials, fell 1.5% and 2% respectively.
Peter Oppenheimer, chief global equity strategist and head of European macro research at Goldman Sachs, calls this the “postmodern cycle.”
“We see it pretty quickly,” Oppenheimer wrote in a note. “It’s a reminder that we still live in a very human physical world. The value of these physical things, including human capital, is actually increasing.
If companies can consistently deliver high-quality products rather than informing customers that they are out of stock or the quality of goods has dropped, customers will appreciate it, even if costs go up, Davis noted. .
Financial experts agree: if the fundamentals are phenomenal, companies will be able to withstand the next economic downturn.