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81% of CEOs Expect This Kind of Recession: Week Ahead

A shallow recession could take hold sometime over the next 12 to 18 months.

That’s according to the latest Conference Board Measure of CEO Confidence survey in collaboration with The Business Council, which declined for the fifth consecutive period in the third quarter of 2022. The measure now stand at 34, down from 42 in the second quarter. A reading below 50 points reflects more negative than positive responses. The measure is considered to have fallen deeper into negative territory to lows not seen since the start of the Covid-19 pandemic.

CEOs in the latest survey were asked to describe the economic conditions they are preparing to face over the next 12 to 18 months, with 81 stating that they are preparing for a shallow recession.

Among other key data, 77 percent of CEOs said current conditions were worse than six months ago, up from 61 percent in the second quarter. And 73 percent expect conditions to crumble over the next six months, up from 60 percent last quarter. They were also pessimistic about conditions in their own industries in the third quarter, with 48 percent stating that current conditions have worsened, and the same percentage noting that they believe things will get worse over the next six months.

“CEO confidence plunged further in Q3, amid continued high inflation, rapidly tightening monetary policy, and ongoing geopolitical uncertainty,” Dana M. Peterson, The Conference Board’s chief economist, said. For now, three-quarters of respondents said demand has either risen or held steady over the past three months.

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“CEOs are now preparing for the near-inevitability of a U.S. recession by year-end or in 2023,” Roger W. Ferguson, Jr., vice chairman of the Business Council and Trustee of The Conference Board, said. At present, most expect the downturn to be brief and shallow, with just 12 percent predicting a deep recession.

According to Ferguson, inflation remains the top challenge for CEO’s, with 60 percent reporting that their input costs have increased or held steady over the past three months, with little expectation of easing in 2022. And despite the concerns, 50 percent of CEO respondents expect to grow their workforce over the next 12 months, even though that percentage has declined form 63 percent in the second quarter. And 82 percent expect their capital spending to grow or hold steady over the next year, down from 93 percent in the prior quarter.

The study mirrored recent earnings call comments. Kohl’s CEO Michelle Gass said the retailer is trying to serve the pressured middle-income consumer by “taking action to adjust our plan and adapt to a softer demand outlook.” And CEO Barbara Rentler said Ross Stores is “facing a very difficult and uncertain macro-economic environment that we expect will continue to strain our customers’ discretionary spending.”

Wells Fargo economists expect consumer spending to hold steady into August while back-to-school shopping continues, but then sees a “sharp spending retrenchment” coming “this autumn” once the bills come due. A recent Federal Reserve Bank of New York report said second-quarter household debt rose 2 percent from the first quarter, passing the $16 trillion mark. And of that total, $890 billion was attributed to credit card balances, $46 billion more than the first quarter. That suggests that consumers are putting more on their credit cards to pay for the higher costs of everyday needs.