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CFOs Predict That a Recession is Likely by End of 2019

Nearly half of CFOs believe the nation’s economy will enter a recession by the end of 2019, and over 80 percent believe that a recession will have begun by the end of 2020. This is according to most recent the Duke University/CFO Global Business Outlook survey. While the survey included CFOs from large companies in various countries, the survey tends to mirror the sentiment of CFOs for small businesses and middle-market companies in the San Francisco Bay Area as well.

Worst-case projections would see a drop in capital spending in 2019, accompanied by flat hiring.

“The end is near for the near-decade-long burst of global economic growth,” said John Graham, a finance professor at Duke’s Fuqua School of Business and director of the survey. “The U.S. outlook has declined, and moreover the outlook is even worse in many other parts of the world, which will lead to softer demand for U.S. goods.”

In 2019, CFOs expect less than 3 percent growth for the U.S. economy, with accompanying capital spending and employment growth of about 3 percent.

“Their recession projections suggest CFOs believe most of this growth will occur early in the year,” Graham said, “This means there is still time for the government to use the tools at their disposal to soften the fall.”

Additionally, CFO’s forecasts are trending on the downside, with a one-in-ten chance that annual real growth will be a minor 0.6 percent. In this scenario, CFOs would expect their capital spending to fall by 1.3 percent and for hiring to remain flat.

“CFOs are getting ready for a recession in the next 18 months,” said Campbell Harvey, a founding director of the survey. “All of the ingredients are in place: a waning expansion that began in June 2009 – almost a decade ago – heightened market volatility, the impact of growth-reducing protectionism, and the ominous flattening of the yield curve which has predicted recessions accurately over the past 50 years.”

Difficulty hiring and retaining qualified employees remains the most-cited concern among CFOs, though the 47 percent of CFOs calling it a top-four concern is down six points from the two-decade high last quarter.

Other top concerns include the cost of employee benefits, government policies, and economic uncertainty.

Consistent with predictions of recession, the Optimism Index for the U.S. Economy slipped to 66 this quarter, compared to an all-time high of 71 last quarter; CFO optimism about their own firms’ financial prospects dropped two points to 69 on a 100-point scale. Both indices were at all-time highs earlier this year.

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