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CFOs Expect Recession by Late 2020

Two-thirds of CFOs predict a recession by the third quarter of 2020, according to the latest Duke University/CFO Global Business Outlook.

Despite that prediction, many San Francisco Bay Area and Silicon Valley chief financial officers (CFOs) expect capital spending and revenue to increase moderately this year.

Sixty-seven percent of surveyed CFOs believe that the U.S. will be in recession by the third quarter of 2020, and 84 percent believe that a recession will have begun by the first quarter of 2021. The survey found 38 percent of CFOs predicting recession by the first quarter of 2020.

A majority of CFOs believe that the U.S. will be in recession within about 16 months,” said John Graham, a finance professor at Duke’s Fuqua School of Business. “While the start date of the recession has been pushed back relative to what we heard last quarter, there is consensus that a downturn is approaching.

The survey asked the CFOs which economic variables will provide the most accurate indication that their own firms are experiencing a slow-down. Almost half (47 percent) of CFOs said they consider gross domestic product (GDP) growth to be one of the three most important indicators of their own firm’s fortunes. Consumer spending (39 percent), commodity prices (31 percent) and interest rates (29 percent) were also highly ranked indicators.

CFOs expect their capital spending and revenue to increase by 5 percent over the next 12 months. CFOs predict hiring to increase by 2 percent and wages to grow by 3 percent.

Wage inflation has picked up due to the tight labor market with 3.8 percent unemployment,” said Campbell Harvey, a founding director of the survey. “However, beware of over-interpreting wage inflation and low unemployment.

Employment is a lagging indicator of the business cycle. “In addition to the 84 percent of CFOs who believe a recession is near, there are other leading indicators that point to a downturn, including the inversion of the yield curve.”

The Optimism Index for the U.S. Economy continued its downward trend, falling to 65 this quarter, down one point from December’s 66 and down five points from the value in September 2018. Over the past 20 years, CFO optimism has averaged 60 on a 100-point scale.

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