CEO sentiment among the largest companies in the U.S. has fallen for the fourth straight quarter this year.
Yet, those economic jitters have not sent CEO confidence jumping out of their high-rise offices.
In fact, Axios’ Courtenay Brown and Neil Irwin say their hiring and capital spending plans “are more consistent with growth slowdown than outright economic contraction” (aka recession).
The latest CEO economic outlook index from the Business Roundtable fell by 11 points to 73, continuing the gradual but steady slide that began in early 2022.
A look back shows that it's the first time since the pandemic was declared in 2020 that the index has fallen below its long-run average of 84.
Brown and Irwin note, however, that the current level “reflects a soft patch, but not a full-blown U.S. recession, like the Eurozone crisis in 2012 and a period of global economic softening in late 2015.”
By Dave Allen for Discount Gold & Silver
CEO sentiment among the largest companies in the U.S. has fallen for the fourth straight quarter this year.
Yet, those economic jitters have not sent CEO confidence jumping out of their high-rise offices.
In fact, Axios’ Courtenay Brown and Neil Irwin say their hiring and capital spending plans “are more consistent with growth slowdown than outright economic contraction” (aka recession).
The latest CEO economic outlook index from the Business Roundtable fell by 11 points to 73, continuing the gradual but steady slide that began in early 2022.
A look back shows that it's the first time since the pandemic was declared in 2020 that the index has fallen below its long-run average of 84.
Brown and Irwin note, however, that the current level “reflects a soft patch, but not a full-blown U.S. recession, like the Eurozone crisis in 2012 and a period of global economic softening in late 2015.”
Plenty to Worry About
You certainly couldn’t blame the CEOs if their outlook were even dimmer. GM’s CEO Mary Barra, who currently chairs the Roundtable, said:
"With continued supply chain challenges and inflation uncertainty, many CEOs remain cautious about domestic plans and expectations for the next six months."
Just look at China, where U.S. manufacturing orders are down 40%. As a result of that big shortfall, Worldwide Logistics says it’s expecting Chinese factories to shut down two weeks earlier than usual for the Chinese Lunar New Year.
Chinese New Year’s Eve falls on January 21, 2023. The seven days after the holiday are considered a national holiday.
Supply chain research firm Project44 reported that vessel TEU (twenty-foot equivalent unit) volume from China to the U.S. has seen a 21% decline in total vessel container volume between August and November.
Asia-based global shipping firm HLS warned, ″It seems to be a very bad time for the shipping industry. We have the combination of declining demands and overcapacity as new tonnage enters the market.”
Not a healthy combination. What’s more, HLS is predicting a further 2.5% decline in container volumes and a nearly 5-6% increase in capacity in 2023, which will continue to negatively impact freight rates in 2023.
Then, OPEC+, a group of 23 oil-producing nations including Russia, recently decided to stick to its existing policy of reducing oil production by 2 million barrels a day, or about 2% of world demand, from November until the end of next year.
Not the worst-case scenario, but not good for world economies either.
Energy analysts had expected OPEC+ to consider fresh price-supporting production cuts ahead of a possible double blow to Russia’s oil revenues.
The EU is ready to ban all imports of Russian seaborne crude starting today, while the U.S. and other members of the G-7 will impose a $60/barrel price cap on the oil that Russia sells.
That’s a move the Kremlin has previously warned would cause more harm than good. We shall see.
International crude oil prices have fallen to below $90 a barrel from more than $120 in early June, weakening demand in China and fostering growing fears of a recession.
Expectations Upbeat but Down from Last Year
Brown and Irwin report upbeat plans for sales growth, hiring and capital spending among the 142 CEOs of the companies surveyed
But, they add, “Those expectations, however, have come down from last year's nosebleed levels.”
Roundtable CEO Josh Bolten said, "The Fed has been pumping the brakes to rein in inflation, and the survey results are unsurprising in that context."
Brown and Irwin even say the survey results point to the Fed's “desired outcome” of inflation falling back closer to its 2% target.
That outcome would be an economic slowdown – the so-called “soft landing” – without a deep or prolonged recession and including only a modest increase in unemployment.
After all, as Senate Banking Committee chair Sherrod Brown of Ohio reminded us yesterday, the Fed’s dual mandate is stable prices and full or maximum employment.
An inflation-fighting program that results in significantly higher joblessness is not a worthy goal – or consistent with its statutory responsibilities.
But last Friday’s government jobs report for November showed wages rising alongside strong job growth — the latest sign suggesting that demand is still too strong for the Fed's liking.
Nonfarm payrolls increased 263,000 for the month, while economists were looking for an increase of 200,000.
To add insult to injury, average hourly earnings boinged 0.6% for the month, double one Wall Street estimate. Wages were up 5.1% on an annualized basis, well above the 4.6% expectation.
If that kind of jobs and wage growth continues much longer, it will likely push the Fed to act even more aggressively in the new year to slow down that demand.
The Fed already has raised rates half a dozen times this year, including four consecutive 75 basis point increases.
Despite those moves, job gains continue to run strong this year if a bit lower than the rapid pace of 2021.
Monthly nonfarm payrolls have been up an average of 392,000 vs. 562,000 for 2021. And demand for labor continues to outpace supply, with about 1.7 positions open for every available worker.
Fitch Ratings chief economist Brian Coulton observed, “The Fed is tightening monetary policy, but somebody forgot to tell the labor market.
“Job expansion continuing at this speed will do nothing to ease the labor supply-demand imbalance that is worrying the Fed.”
Fed chair Jerome Powell has for months been stressing the importance of getting labor force participation back to its pre-pandemic level.
However, the November jobs report showed that participation fell slightly to 62.1% – the lowest level of the year – as the labor force fell by 186,000 and is now just below the February 2020 level.
I’m not sure whose shoes I’d want to be in less these days – Fed policymakers’ or the CEOs’.