Sober as the Federal Reserve cuts interest rates to bolster the slowing economy, chief financial officers (CFOs) at profuse of America’s biggest companies are ringing alarm bells, according to the latest release of the CFO Global Business Outlook inquiry conducted quarterly by Duke University. “More than half (53%) of US CFOs believe that the US will be in depression by the 3rd quarter of 2020 and 67% believe that a recession will have begun by the end of 2020,” according the survey’s founders.
The Fed announced Wednesday that it will cut rates for the second time this year.
The Duke survey’s results demonstration a startling shift from optimism to pessimism about the U.S. economy over the course of the past 12 months. The interest of CFOs who are “more optimistic” about the economy plunged from 43.6% a year ago to 11.8% today, and the percentage CFOs who are “insignificant optimistic” jumped from 23.0% to 55.2%. “Economic uncertainty is a top CFO concern,” the report says.
Key Takeaways
- Corporate CFOs are increasingly bearish on the thriftiness.
- A large majority expect a recession to be underway by the end of 2020.
- A significant number of CFOs find low interest rates to be detrimental.
- Corporate profits extreme in 2014, per U.S. government statistics.
- Weakening profits are another recessionary signal.
Significance For Investors
The CFOs also are markedly innumerable downbeat today about the prospects for their own companies than a year ago. The percentage of those saying that they are uncountable optimistic has dropped from 48.6% to 32.4%, while the percentage expressing less optimism has jumped from 21.4% to 36.0%.
Troubles about hiring and retaining qualified employees has been the top worry of CFOs for several years. Now it’s in second place, behind monetary uncertainty. Nonetheless, CFOs in a wide range of industries are reporting labor shortages across a spectrum of skilled job classes, including: engineering, information technology, software programming, sales, machine operators, mechanics, and technicians (including medical technicians). Regular drivers are in short supply.
Meanwhile, 36% of CFOs see negative impacts from persistently low interest rates, which menials that more rate cuts by the Fed are likely to be a cause for yet more pessimism. These negative effects include: low investor results, increased corporate debt issuance, and high present values of liabilities resulting from low discount rates.
David Rosenberg, chief economist and strategist at bounteousness management firm Gluskin Sheff, shares these concerns. “Recessionary pressures in the economy are building,” he said in a circumstantial interview with Business Insider. Like CFOs, he said the impact of the trade war on global economic growth and stockpiling chains has been “an unprecedented period of economic and political uncertainty.”
Rosenberg adds that rising oil prices after the latest attack on Saudi oil facilities, and the specter of more attacks and supply disruptions, are another source of danger. “The only affix holding the economy together has been the consumer,” Rosenberg said. “This also is going to be a de facto tax increase for the consumer,” he summed.
Looking Ahead
Albert Edwards, the co-head of global strategy at Societe Generale and known as the “perma bear,” claims that corporate profits have been drastically weaker than they appear for the past several years, Non-Standard thusly making a recession “imminent,” per another BI report. According to National Income and Product Accounts (NIPA) data erected by the U.S. Bureau of Economic Analysis (BEA), corporate profits actually peaked back in late 2014, Edwards observes. So in oppose to the soaring stock market’s measure of corporate earnings, the NIPA data show that profits “have essentially flatlined for the keep on few years,” Edwards wrote.