Concerns over whether the U.S. economy will be able to tamp down inflation without entering a recession are continuing to grow.
According to the latest Conference Board Measure of CEO Confidence survey released on Wednesday, an overwhelming majority (93%) of CEOs are preparing for a U.S. recession over the next 12 to 18 months. However, 81% of respondents expect it will be a brief and shallow recession with limited global spillover, the survey found.
The results are correlated with earnings from the last few weeks. Across the board, retail executives have noted softening demand in non-discretionary categories and have expressed concern about weak consumer demand. Walmart CFO John Rainey said last week that the company has “canceled billions in orders” to deal with inventory pileups that have amassed over the last few quarters. Target said it had reduced its “inventory exposure in discretionary categories” throughout Q2 by canceling more than $1.5 billion of orders in these categories and marking down products. Kohl’s, Foot Locker and more companies cited weak consumer demand as well. However, many expressed optimism in the return to normalcy through the course of the year.
Among other key data in the CEO Confidence survey, 77% of CEOs said current conditions were worse than six months ago, up from 61% in the second quarter. And 73% expect conditions to crumble over the next six months, up from 60% last quarter.
“CEO confidence plunged further in Q3, amid continued high inflation, rapidly tightening monetary policy, and ongoing geopolitical uncertainty,” Dana M. Peterson, chief economist of The Conference Board, said in a statement. “Yet, alongside this deepening concern over the direction of the economy, business leaders continue to report conditions and intentions at their own firms that paint a more nuanced picture.”
Peterson added that three-quarters of CEOs reported that demand has risen or held steady over the past 3 months, while a majority said they intend to continue expanding their workforce and increasing wages.
This data coincides with new numbers released today by the National Association of Business Economics (NABE). In the organization’s August 2022 Economic Policy Survey, the NABE reported that 73% of economists indicate they are “not very confident” or “not at all confident” that the Federal Reserve will be able to bring inflation down to its 2% goal within the next two years without triggering a recession.
In fact, despite the Fed’s intervening rate hikes, only 27% of economists feel “confident,” “somewhat confident” or “very confident” that inflation could be tapped down without sparking a recession, also known as a “soft landing.”
There is a wide range of opinion among the NABE panelists as to when the next U.S. recession—as determined by the National Bureau of Economic Research (NBER)—will begin. Roughly one-fifth (19%) of panelists believes the U.S. is already in a recession, while one-quarter places the likely start date in the third quarter of 2022 (9%) or Q4 (16%), the survey found. More than one-quarter (28%) anticipate the start date to be in the first half of 2023, but 20% of panelists do not expect a recession to begin before the second half of next year.
“Survey results reflect many split opinions among the panelists,” NABE president David Altig said in a statement on Monday. “This by itself suggests there is less clarity than usual about the outlook.”
This comes week after the U.S. economy retracted for the second quarter in a row, sparking concerns that the country is headed into a recession. After hitting a 40-year high inflation rate earlier this year, the Bureau of Economic Analysis reported in July that real gross domestic product (GDP) decreased at an annual rate of 0.9% in the second quarter of 2022. This follows the 1.6% real GDP decrease in the first quarter.
This is concerning to many as two consecutive quarters of economic retraction is widely accepted as the normal indicator of a recession in the financial community. Despite this milestone, the Federal Reserve and the Biden administration were quick to state that the U.S. is indeed not in a recession at the time.
The Federal Reserve in July raised interest rates by 0.75%, repeating the same hike seen in June. “The committee decided to raise the target range for the federal funds rate to 2-1/4 to 2-1/2% and anticipates that ongoing increases in the target range will be appropriate,” the Fed said in a statement at the time.
Meanwhile, the Inflation Reduction Act, which was being debated in the Senate as the NABE survey was taken, received broad support from economists.
The bill, which was signed into law by President Joe Biden last week, saw a majority of economists (76%) support the $300 billion deficit reduction goal, according to the NABE. There was also notable support the 15% minimum corporate tax, with 69% of panelists in favor of the action, as well as the expanded Affordable Care Act subsidies and drug-pricing reform provisions, with 68% of panelists in favor.