CFOs: Recession Has Already Started

by: Barry Ritholtz

Let the economists, pundits, strategists and talking heads debate all they want. CFOs -- the people in charge of Corporate America's finances -- have already weighed in. The folks who have the greatest influence on corporate hiring and capex spending have made their views known in a recent Duke University/CFO Magazine survey completed on March 7.

What did the CFOs say? "A recession has already started and the downturn is likely to last longer than in the recent past, with the economy recovering only late next year."

Here are the highlights of the CFO's views:

• 54% said the US is in recession; another 24% said there was a high likelihood of one starting this year.

• Nearly 75% of the CFOs were more pessimistic this quarter than the prior quarter;

• Companies are scaling back plans for capital spending and are not planning significant hiring;

• Most CFOs said interest rate cuts by the U.S. Federal Reserve have had no impact on their business;

• One third said credit conditions have directly hurt their companies by making capital tougher to get and more expensive;

• The Duke U index of economic optimism is at 52 (1 to 100 scale) -- the lowest in the seven-year history of the index;

• CFOs in Europe and Asia have grown more pessimistic about economies in their regions;

• Two-thirds of Chinese CFOs said they are concerned about a U.S. recession hurting their profit margins or demand for their exports.

It is interesting to note that the CFOs see this recession as different from the past two -- the short shallow contractions of 2001 and 1990. Both of those lasted ~eight months. Duke professor Campbell Harvey said: "In contrast, 90 percent of the CFOs do not believe the economy will turn the corner in 2008. Indeed, many of them believe it will be late 2009 before a recovery takes hold."

The CFO survey further points out the absurdity of the claims that "There is no credit crunch."

Here is Duke's Economic Optimism Index:

Global CFO Survey: Recession in 2008, no relief until 2009
Duke University, 4:40 p.m. EDT Wednesday, March 12, 2007

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