There is a 31 percent chance of a recession in the US, according to a survey of company chief financial officers. This recession could come around the end of 2016, the CFOs think. CFOs in other countries are even more pessimistic.
The major economies that could also be in recession outside of the U.S. include Mexico, France, Nigeria, Japan and China. Some are already in recession and many are expected to remain there, at the end of the year.
This survey was conducted by Duke University/CFO Global Business Outlook, and the 31 percent figure is double what it was nine months ago. American CFOs see China’s slowdown as the biggest threat to their company and the U.S. economy as a whole. 59 percent think China is a “significant” risk. Other factors include political uncertainty, stock market declines and oil prices.
Director of the survey, John Graham, a finance professor at Duke’s Fuqua School of Business, said “The recession outlook has worsened significantly in the last nine months. Last June, the odds of recession were low in many countries, including the U.S., Canada and much of Europe. Today, driven in large part by slowing emerging economies and volatile financial markets and commodity prices, the risk is relatively high around the world.”
The recession outlook has worsened significantly in the last nine months. – John Graham, Duke Fuqua School of Business
According to the survey, while capital spending is expected to increase, it will be at a slower rate than last quarter, down from 2.5% to 2%. As usual, spending on tech will increase at a higher rate then general capital spending, around 4.3 percent.
Another issue the survey looked at was changes to the U.S. minimum wage. This issue elicited a bleak outlook. 75 percent of U.S. firms that pay some of their workers the minimum-wage said if the minimum wage is raised to $15 per hour, they would need to reduce current or future employment numbers. This could also lead to increased replacement of people with robots.
CFOs are generally slightly less optimistic about the American economy this quarter. They rate the outlook at 59, down by 1 point from last quarter and below the long-run average. Economic uncertainty is driving some of that pessimism. The cost of health care is expected to rise by more than 7 percent in 2016, and that, plus the cost of other benefits, difficulty finding qualified employees and handling regulatory requirements are also on the CFO’s minds.
To the north, Canadian CFOs are even more pessimistic than Americans, down from 59 in December to 56 now.
To the south, Latin American economic optimism remains even lower (45), but the survey notes that there are major differences there. It is hard to tell if this is irrational exuberance, but Brazil and Chile each rate about 37 in the pessimism stakes, but Peru rates 63 and Mexico, 70. Brazil and Ecuador are expected to be in recession at year-end, but others are not so sure.
There are differences in full-time employment outlook in South America, too. Brazilian CFOs expect a fall by 5 percent, Ecuador a fall by 2 percent in Chile, while increasing by a median 3 percent in Mexico.
Chile, 30 percent in Mexico and 19 percent in Peru. Averaged across Latin America, capital spending in expected to rise 3.7 percent in 2016, with a positive outlook in all responding countries. Full-time employment is expected fall by 5 percent in both Brazil and Ecuador, fall by 2 percent in Chile, and increase by 3 percent in Mexico.
So American CFOs are not the only ones that see the possibility of a recession this year, but it is by no means a done deal