DURHAM – A growing number of corporate financial officers are expecting a recession to hit the US economy before the 2020 presidential election next November.
So says a new survey from Duke Universty and CFO magazine.
“CFOs have a reputation for being pessimistic, and because of this, some people even refer to CFOs as Dr. No. But if you actually look at the data, in many parts of the world, for the last six or eight years, CFOs have been optimistic,” says Professor John Graham of Duke’s Fuqua School of Business.
“Not anymore.”
In fact, CFO optimism has sunk to a three-year low.
Will Fed cut interest rates? Economic turbulence adds to uncertainty
“Business optimism has not been this low since September 2016, a time when the unemployment rate was 5 percent,” says Graham, director of the survey. “Optimism is low in all regions of the world, which exacerbates any slowdown occurring in the U.S.”
Fifty-three percent of more than 220 US-based CFOs participating in the quarterly economic overview say a recession is going to hit by the third quarter of next year.
If not then, more (67 percent) see a recession will begin before 2020 comes to a close.
“The CFO Optimism Index, which historically has been an accurate predictor of hiring and GDP growth, fell this quarter,” Duke adds.
“Fifty-five percent of CFOs have become more pessimistic compared to the 2nd quarter this year, far outnumbering the 12 percent who say they have become more optimistic.”
The findings are consistent with recent surveys of investors and market signals that show a rising risk of a recession, CNN notes.
“The risk is that these fears become a self-fulfilling prophesy,” the network adds. “When CFOs are nervous, they tend to scale back on spending on things like factories and new equipment. That in turn slows the economy.”
The outlook is even worse outside the US.
“81% of African CFOs believe that a recession will have begun in their countries no later than Q3 of 2020, as do the majority in Canada (68%), Europe (69%), Asia (72%), and Latin America (65%),” the survey says.
Biggest worries
“Economic uncertainty” has risen to the top cocern for executives, reflecting recession fears.
With the trade war between the US and China, Brexit challenges in Europe and other turmoil, CFOs are now not more concerned about hiring and retaining “qualified employees,” which has been the top worry in recent surveys, Duke notes.
Still, CFOs are worried about talent in many areas, citing “shortages in engineering, information technology, software programming and sales. Manufacturing and mining companies are looking to hire machine operators, mechanics, technicians and drivers. Medical technicians are also in short supply,” the survey notes.
Another concern is low interest rates.
“Thirty-six percent of U.S. CFOs indicate that there are negative effects of continued low interest rates,” Duke notes.
“Negative effects include inability of investors to earn a reasonable return, high present value of liabilities due to low discount rates, and firms taking on too much debt.”
