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Business

CEOs are bracing for a recession, and they don’t think it will be a short one





New York
CNN Business

Big CEOs aren’t buying the idea that the U.S. economy could have a soft landing after a series of historically large rate hikes by the Federal Reserve to fight inflation.

According to a survey of 400 managers of large US companies by the consulting company KPMG, a whopping 91[ads1]% predict a recession in the next 12 months. Also, the survey, released Tuesday, found that only 34% of these CEOs believe the recession will be mild and short.

“There has been tremendous uncertainty over the last two and a half years,” said Paul Knopp, chairman and managing director of KPMG US, citing the Covid-19 pandemic and concerns about inflation. “Now we have another looming recession.”

Companies prepare for a downturn and plan to cut spending. A big way to cut costs? Cut back on work. KPMG noted that more than half of CEOs are considering workforce reductions to deal with a recession.

But there are some (slightly) hopeful signs.

Although a majority of CEOs believe a recession will be more than just a modest retreat, many C-suite executives believe they are in stronger shape now to deal with such a harsh economic reality than they were in 2008.

The collapse of Lehman Brothers, the global financial crisis and the Great Recession led to a doubling of unemployment, from 5% to 10%, between the start of 2008 and the end of 2009.

“There is longer-term optimism about the U.S. economy and the outlook for their own organizations,” Knopp said. “Companies see themselves as more resilient and better prepared.”

It’s also worth noting that companies have recently dealt with something of a dress rehearsal for a downturn when the economy briefly dipped into recession two years ago during the onset of the pandemic. Unemployment rose to a record high of 14.7% in April 2020.

But Knopp said CEOs are clearly nervous enough about the near-term outlook for the economy that they intend to make changes to some long-term spending plans. A particular area that may be affected is investments in ESG efforts.

Knopp noted that while many CEOs said they believe their businesses will improve over the long term due to environmental, social and governance initiatives, they may need to halt some of these efforts in the next year or so to keep costs down.

He added that companies realize there is potentially even greater risk in cutting too many jobs and reducing spending too much.

“Companies cannot overreact in the short term because it can cause problems in the long term. The pandemic has continued to create pressing concerns for companies, Knopp said. “Companies hope that there will be a quick start in the economy again after a downturn.”

Knopp said CEOs are also going to be paying close attention to the midterm elections and the political landscape in Washington more broadly before setting any long-term investment plans.

“There is real uncertainty about the outcome of the interim periods and the potential for tougher tax laws and increased regulations,” he said.

The concerns among managers in top companies are clearly also shared by the managers of smaller companies.

A survey of midsize companies conducted last month by accounting and consulting firm Marcum LLP and Hofstra University’s Frank G. Zarb School of Business found that more than 90% of midsize CEOs are worried about a recession. More than a quarter of these CEOs said they have already begun layoffs or plan to do so within the next 12 months.



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