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US corporate finance executives split on economic outlook

US corporate finance executives and economists are divided on the outlook for the world’s largest economy, with more expecting a slowdown in the rate of growth or even a recession.

“In spite of a strong US. economy, a corporate tax cut that helped banks earn record profits in the second and third quarters of 2018, and enactment of regulatory relief legislation, bankers have become increasingly pessimistic about the future,” reports Mark Jacobsen, co-founder and chief executive of Promontory Interfinancial Network, which has around one third of US commercial banks as members.

The more pessimistic analysts suggest that recent regulatory efforts to boost America’s business community and support the national economy haven’t been enough to prevent a recession.

Business magazine Forbes notes that marketers share economists’ concerns on what they predict is an upcoming economic downturn, with chief marketing officers (CMOs) now taking on the burden of “doing more with less” this year

Fed’s mixed message

This pessimism contracts with a newly-published survey from CNBC Global CFO Council, an elite group of corporate chief financial officers (CFOs). It found many CFOs unconvinced that a US recession is likely in the near-term.

“If you’re looking for trillions of dollars making the bet that a recession is coming sooner rather than later for the US economy, don’t look to major corporations,” the publication noted.

While the Federal Reserve has expressed concerns about the economy, citing the global economic slowdown as the reason for tapering back interest rate hike plans, it still regards current economic conditions s “healthy”, according to Fed chairman Jerome Powell.

Yet, despite a “favourable” economic outlook, the Fed has “seen some crosscurrents and conflicting signals … financial conditions are now less supportive of growth than they were earlier last year.”

Countdown to recession

A Fed survey on the expectations of economists, CFOs and other finance experts for the US economy found that based on the median respondent to the survey there was a 2% probability that the US is already in recession and a 12% probability that within six months it will be in recession. When asking survey participants when they believed a U.S. recession might occur, either 2020 or 2021 were regarded as the highest probabilities

According to CNBC, 91.3% of CFOs don’t believe the US economy will experience a recession this year, but just under half thought the European Union’s economy would also maintain growth. CFOs were less confident about the US stock market and also expect the positive impacts of US tax reform to steadily fade.

None of the CFOs surveyed by CNBC expect the Fed to cut interest rates in 2019, while only 17% predicted two or more rate hikes Nearly half said they expect the Fed to raise rates at least once this year and 30% anticipate no change.

Chief marketing officers (CMOs) asked by Forbes to provide their US economic optimism scale – based on a reading from one to 100 – gave an average ranking of 57. That marks a 21% decline from a year ago, with 56.2% of CMOs reporting they feel less optimistic this year than last, while 48.6% predict the US economy will enter recession by the end of 2019.

The Promontory Interfinancial Network survey found that 71% of bank presidents and CFOs  believe a recession won’t happen before 2020, while 25% expect it to have arrived by the second half of 2019.

While some economists have raised concerns about the growing US corporate debt load, less than one in three bank executives surveyed said they feel their current corporate debt levels are bad for business. Most, however, said it has no impact or is actually good for business.

Finally, a report by the National Association for Business Economics (NABE) reports that 11% of economists expect the US to avoid recession until at least 2022. Around half expect it to arrive by the end of 2020 and three in four anticipate that recession by the end of 2021.

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