CFOs: Recession Has Already Started

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:

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

Recession has already started, CFOs say-survey
Nick Zieminski
Wed Mar 12, 12:38 PM ET

Portfolio Strategy | Crunch Mythology
Ken Fisher
Forbes 03.24.08, 12:00 AM ET

Comments

[Just Say Whoa!:]

CFOs are really smart financial people who make guesses about the future.

2008 Mar 13 04:15 PM

[Tony Soprano:]

Barry, if you don't mind me saying that you are a bear and that you are a pregnant bear. And other bears out there are pregnant as well. Soon the world will be run over by bears and their cubs. THIS IS VERY BULLISH!

We have had three world downturns and they all have faltered. Call it a triple bottom? THIS IS VERY BULLISH!

Members on this site are using word and phrases like: death of a thousand cuts, world wide despair, fear fueling more fear and so on. THIS IS VERY BULLISH!

Foreign investors will show up at our doorstep with cash. This not Armageddon and they know it. They will start buying while the dollar is low. Later this year or early in 09 the dollar will rebound and investors around the world will be praising America. THIS IS VERY BULLISH!

The commodities bubble will burst. This will be Armageddon but not for the consumer. The frozen consumer will defrost. Coins will be jingling again. THIS IS VERY BULLISH!

Later in 08 housing starts will show faint signs of leveling off. By Mid 09 housing will be fully stable. Large plumes of dust from new home construction sites will appear on the horizon. THIS IS VERY BULLISH!

As you see Barry, your string is getting shorter and good luck with all those cups they will be very hungry.

2008 Mar 13 04:17 PM

[Bela Ghoulashi:]

And the indefatigible Tony Soprano once again maintains his bulltish stance...

2008 Mar 13 07:50 PM

[J. Fredrickson:]

THIS IS VERY BULLSHI!

2008 Mar 13 08:58 PM

[Lilguy:]

That graphic is amazing!

CFO optimism peaked in 2003 and has been going down hill ever since (with wiggles, of course). So, are they addressing the cyclical aspects of the economy and stock market--which generally started going up in 2003 and peaked in mid-2007--or are they looking at a larger global macroeconomic picture--the role of the US in the global economy. Or maybe they're reflecting some Ellliot (no, not Spitzer!) Long Wave theory bear cycle.

I'm just surprised they haven't seemed to have a good day in five years.

2008 Mar 13 09:42 PM

[billydlight:]

Tony Soprano has probably never been lip-serviced about how good an employee he is before being dismissed at the end of the week. Later to see his old job in the paper after a "rebound" for less pay. Lol! 2001...so much fun! I worked tel-com sector. Was told, pushed and pamphleted that World Com was the wave of the future. I asked "WTF do they do and why a line layer should care?" They said, "Invest now! (Realtor:Buy Now!) They will build a trans-atlantic internet cable!" Knowing history, I laughed in his face. Where's the cable now? When 9/11 came they said, "Don't worry. It was in NY. Far, far away." I began looking for other work that day. I was ready when the pinkslip arrived.

2008 Mar 13 10:12 PM

[locke:]

It's hard to look at this graph and not interpret it as evidence that CFO sadness is a contrarian indicator. Sad CFOs = market bottom.

2008 Mar 13 10:54 PM

[sammyg123:]

Soprano may be right in the long term, but his theory will be tested, because we are in a bear market. Bottom pickers often become cotton pickers. Dogma won't help you right now, we are in a financial crisis that has never been seen before, and nobody knows how deep it is. We do know that it is deeper than what we have seen thus far. CFO's have insight into their companies and their industries. They are a lagging indicator, to a degree, because they only see what has happened, however, they do have some short term foresight, too. This is a bad market, Soprano, and I wish you luck. I have a mixture of short and long positions. I am ambivalent, and quite comfortable. When the economy turns, then I'll change my stance. In the meantime, I keep reading Ritholtz. He writes what I see as reality in the market, from Wall Street to the convenience store. If this isn't enough for you, try thestreet.com. They'll tell you what you want to hear.

2008 Mar 13 11:47 PM

[Fred Swartz:]

Interesting graph, thanks. Although some noted the decline in optimism over a longer period, it only moved into negative territory for their own firms (where one presumes they are experts) in 2008.

2008 Mar 14 01:50 AM

[Tony Tovar:]

Yeah, when you have big dogs like Warren B. saying we are in a recession. Somehow the technical definition just doesn't matter anymore. Its kind of a good thing because people are probably take a pro-active step to lessen the blow ahead of time by two quarters or so, at least on the consumer side. I'm not sure what to think about the growth policies and monetary policy put in place. Lets just hope they came in time and that all the big dogs are wrong eh? :\

2008 Mar 15 12:55 AM