- Pessimism eased among CEOs last month compared with April, yet 84% of top executives are preparing for a recession during the next 12 to 18 months, according to a quarterly survey by the Conference Board and Business Council.
- Most CEOs predict “a short and shallow” downturn, with just 4% forecasting that a deep recession will jar the global economy compared with 13% who held that view in October 2022. The proportion of CEOs expecting no economic contraction rose to 17% from 2% during the same period.
- “The gloom that pervaded among CEOs at the start of 2023 has lessened, but most are still treading carefully,” Business Council Vice Chair Roger Ferguson said in a statement. Only 28% of the top executives reported an improved economic landscape compared with six months ago, while 31% said conditions were worse, he said.
Labor market strength, slowing inflation and improved consumer sentiment have prompted economists and C-suite executives to either hedge forecasts of recession or voice confidence in continued economic vitality.
Higher-than-expected gross domestic product growth of 2.4% during the second quarter “will provide momentum for the third quarter,” Moody’s Analytics said Thursday in a research report. It marked up its forecast for annual growth to 2% for this year and 1.3% for 2024 compared with July projections of 1.7% and 1.1%, respectively.
Goldman Sachs economists have reduced the probability of a downturn during the next 12 months to 20% from the 25% probability they set in June. Economists at JPMorgan and Bank of America this month withdrew predictions for recession this year.
Federal Reserve economists, after advising policymakers in March and June that a downturn was likely this year, brightened their forecast last month to slower growth, Fed Chair Jerome Powell said on July 26 after a two-day meeting of the central bank.
The two-week survey of 127 CEOs by the Conference Board and Business Council concluded July 24, three days before release of the higher-than-expected advanced estimate of Q2 growth.
Recent data signal persistent economic strength and suggest that Fed policymakers next month may find reason to hold interest rates steady after a 15-month effort to quash inflation through monetary tightening.
Price pressures eased last month, the Labor Department said Thursday, with the core consumer price index excluding volatile food and energy prices rising 0.2% in the smallest consecutive monthly gain in more than two years. Core CPI on an annual basis rose 4.7% in July compared with a 4.8% increase in June.
At the same time, consumer expectations for inflation fell this month, according to preliminary data from the University of Michigan released Friday. Fed policy makers track consumer attitudes for signs that price pressures are ballooning out of control.
Consumers expect prices will rise 3.3% during the next year, compared with 3.4% last month, and 2.9% during the next five to 10 years, compared to 3% in July.
Year-ahead inflation expectations have shown “remarkable stability for three consecutive months,” Joanne Hsu, director of the survey, said in a statement.
Meanwhile, when viewing the economy, consumers “saw substantial improvements relative to just three months ago,” she said. Consumer spending fuels about 70% of economic growth.
In another sign that the Fed may hold off from growth-inhibiting interest rate hikes, the unusually hot labor market cooled somewhat last month, with payrolls increasing 187,000, while unemployment dipped to 3.5% from 3.6% in June, the Labor Department said on Aug. 4.
The economy’s resilience has surprised several CEOs and their C-suite colleagues, judging from their comments during Q2 earnings calls with company analysts.
“We're now over a year into a freight down-cycle with an unusual combination of dynamics at work to create a particularly difficult operating environment,” Knight-Swift Transportation CEO David Jackson said in a July 20 earnings call. “I don't know that we've ever seen freight demand fall this far so fast and for so long without an accompanying economic recession.”
At the same time, many Knight-Swift customers have belied predictions of a downturn and plowed forward despite the Fed’s most aggressive policy tightening in four decades, Jackson said.
“I'm not suggesting that truckload demand softness is an automatic read-through or predictive indicator of broader economic weakness,” he said. “In fact, we're very encouraged with how consumers in the economy have digested interest rate increases and their positive impact on inflation.”
Avient Corp. CEO Robert Patterson has also found cause for optimism amid forecasts of an impending economic slump.
“We acknowledge that near-term challenges persist, but I think there should be a growing sense of optimism,” he said during a July 27 earnings call.
“It is beginning to look like the U.S. rate of inflation is declining and destocking should begin to moderate in many industries,” Patterson said. “And it also seems less likely that recessionary conditions will spread beyond the manufacturing sector.”
Eaton Corp., like many companies, has postponed the date of a possible recession, CEO Craig Arnold said during an Aug. 1 earnings call.
“We, like so many others, had anticipated a mild recession this year, and our thinking around recession continues to be pushed out as it does for, I think, most of the economists in the world,” Arnold said. “So at this juncture, I mean we're feeling pretty good about the year.”
Despite concerns about a possible downturn, fast food chain Wendy’s expects demand to remain robust as inflation takes a smaller bite out of disposable income. Indeed, real hourly earnings rose 1.1% during the year through July, the Labor Department said Thursday.
“We do know the lower-income cohort, as inflation starts to moderate in the back half with all the gross income improvements they had, real income will start to improve, which could be a nice tailwind for our business,” Wendy’s CEO Todd Penegor said in an Aug. 9 earnings call.
Clorox is planning for a mild recession during the first half of 2024, which is the second six months of its fiscal year, according to CEO Linda Rendle.
“This [fiscal] year coming up is kind of a tale of two halves,” she said during an Aug. 2 earnings call.
“We expect strong growth in the front half,” Rendle said. “Then in the back half we expect it to get tougher for consumers.”