Cautiously Optimistic

This week, I want to further my prognostication about the US economy, but back up my prior assertions with data.  Two different, well-established surveys of business leaders in the US regularly assess their thoughts about the direction of the overall US business climate and their thoughts about their own company’s business projections for the next six months.  Some interesting data has emerged from these two reports.

The CFO Survey was started in 1996 by Duke University’s Fuqua School of Business. It is now a quarterly survey conducted by Duke in partnership with the Federal Reserve Banks of Richmond and Atlanta. In this survey, CFOs at America’s leading companies are asked about their “optimism about the US economy.”  It also asks about their optimism for their own company’s performance.  Looking at the data, there was a divergence in 2015 where corporate optimism was relatively stable but US optimism fell.  In 2015 we had terrorist strikes on three continents, the Trans-Pacific Partnership was accomplished, Russia intervened in Syria, and the US signed the Paris Climate Accord. (Council on Foreign Relations)

Starting with the third quarter report of 2021 optimism about both the US economy and the company outlook have dropped.  But the corporate optimism has dropped much less than the national optimism. The chasm between the two is the largest in the 20-year history of the survey.

Graph of CFO Optimism

John Graham, a Duke finance professor who helps direct the survey, thinks the CFOs’ optimism about their own companies reflects a belief that they will be able to manage any challenges the economy throws at them. “Things aren’t great, but we have a plan,” is how he categorizes the mind-set.

Now I want to introduce you to the Business Roundtable, an association whose members are the chief executive officers (CEOs) of America’s leading companies. These CEO members lead companies with 20 million employees and more than $9 trillion in annual revenues.  They just finished up their quarterly “Economic Outlook” survey of their members. In it, they ask for the CEO’s corporate expectations over the next six months regarding Hiring, Capital Investment, and Sales.  In general, the report indicates that the CEO expectation for their own companies is still higher than the historical average, though their expectations for the next six months dropped from the previous quarter, producing the sixth largest quarterly decline in the history of the index.

If we look at the data from these two surveys together, we might see that corporate leaders are losing confidence in the US economy overall, but they believe their own companies will weather the storm better than others.  In the near term, that might translate into “cautious optimism.”  But is that optimism misplaced? Do you share their optimism about your own company?

If the economy really does enter a recession, many of us will find out exactly how prepared we are.  And the chances are we are not as well prepared as we think. What are you doing now, to prepare your company for a sustained economic downturn?  Are there opportunities to improve efficiency? To use the resources at your disposal to improve your bottom line or to streamline your processes? Let us know below!

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