According to a highly respected business survey released Wednesday, corporate executives are pessimistic about their outlook, with an overwhelming majority of them now forecasting a recession.
According to the Conference Board’s survey of CEO sentiment, 57 per cent of the respondents now expect inflation to fall only “over the next several years,” but the economy to remain in a “very brief, mild recession.”
The board’s Measure of CEO Confidence fell to 42 in the second quarter, a sharp decline from 57 in the first quarter and the lowest since the early days of the Covid epidemic. Anything below 50 indicates a pessimistic perspective, as the number shows the proportion of respondents who foresee expansion vs those who expect decline.
In an interview with CNBC after the report’s release, Roger Ferguson, vice chairman of the Business Council and a trustee of The Conference Board, said the reading “is consistent with slowdown for sure.”
“All of this is telling us that the combination of inflation that is much too high, to quote [Federal Reserve Chairman] Jay Powell, wages that are increasing but not keeping up with inflation, and then the inability to pass all this along is creating a very, very challenging dynamic,” said Ferguson, a former Fed vice chair.
The report’s bad news didn’t end with the recession expectation reading.
In the second quarter, only 14 per cent of CEOs said business conditions had improved, down from 34 per cent in the first quarter. Sixty-one percent believed things were becoming worse, compared to 35 percent in the previous poll. Only 19 per cent anticipate things to get better in the future, down from 50 percent, and 60 per cent expect things to go worse, up from 23 per cent.
One piece of positive news is that 63 per cent anticipate to hire in the coming quarter, down from 66 per cent in the first quarter. However, 80 percent indicated they had trouble finding suitable workers, a modest decrease from 85 per cent in the first three months of the year, and 91 per cent expect wages to rise by more than 3 per cent% in the coming year, up from 85 per cent in the first three months.
In addition, only 38 per cent of respondents intend to boost capital spending, down from 48 per cent previously. Stagflation, or sluggish growth and excessive inflation, is seen by 20 per cent of people.
Powell said in an interview with The Wall Street Journal on Tuesday that he is still committed to keeping inflation under control, but that conditions must shift “clearly and convincingly” before the Fed stops raising rates and tightening monetary policy.
“This collection of circumstances is not expected to improve anytime soon,” Ferguson said, “and subsequently strains on the middle line and bottom line for firms, pressures on the household sector, pressures at the CEO level, and, frankly, pressures on the Federal Reserve.”
(Adapted from CNBC.com)