Why is everyone so pessimistic?
A survey of 225 chief financial officers by Duke University shows pessimism on the U.S. economy has been growing steadily this year, despite record low unemployment and a strong consumer.
The quarterly Duke University/CFO Global Business Outlook of 225 CFOs found that a majority of U.S. CFOs (53%) believe that the country will be in a recession by the end of the third quarter next year. Sixty-seven percent see a recession by the end of 2020.
“Dr. No is back,” Duke University Finance Professor John Graham, the author of the report, said, referring to the increasing pessimism of CFOs. Those “growing more pessimistic outnumbers those growing more optimistic by a five to one margin.”
The findings parallel a similarly pessimistic outlook from the monthly Bank of America/Merrill Lynch Global Fund Manager Survey, out Tuesday. That survey of over 100 global managers found that 38% expect a recession next year, the highest net recession risk since August, 2009. Fund managers continue to expect low growth and low rates and believe central bank stimulus will continue to be needed.
Why the spurt of pessimism? “The extreme uncertainty, not just in the U.S. but all around the world, is weighing on companies, and when you get extreme uncertainty there is a tendency to hunker down,” Graham told me. “Trade wars are a part of that, but only a part. Germany, one of the largest economies in the world, has flat growth. China is always a bit of a mystery, but there is certainly slower growth there as well.”
Graham acknowledged that the U.S. economic data remained strong, and cautioned that pessimism, while high, was not at extreme levels. But the CFOs seem to be saying that a strong U.S., by itself, may not be enough to save the day: “It’s just not clear right now what part of the world economy is strong enough to pull the rest of the world along with it.”
The pessimism of the CFOs seemed confirmed after the close on Tuesday when FedEx missed and lowered guidance for the rest of the year.
“Our performance continues to be negatively impacted by a weakening global macro environment driven by increasing trade tensions and policy uncertainty,” Frederick Smith, chairman and CEO, said.
One bright spot: the survey indicates that CFOs are continuing to hire.
“Job titles that have the most opportunity right now include engineers, machine operators, manufacturing technicians, medical technicians, and sales,” Graham said.