CFOs Say China, US Political Turmoil Pose Greatest Risk To Economic Outlook

By FS Staff

CFOs in the US have grown less optimistic the last few quarters and are preparing for cloudy skies ahead. They cite a number of key risks to economic growth with China at the top of the list followed closely by political turmoil here in the US.

Here's what John Graham, the Director of the Duke CFO Global Business Outlook had to say on our podcast last Friday:

"We survey CFOs because we are asking a lot of questions about financial variables - do you plan to increase hiring or lay people off, what do you think will happen with your earnings, how about your capital spending plans - and CFOs know these numbers by heart. They don't have to go look them up and…more importantly, the survey is anonymous…

So, as long as business plans come true, we have a crystal ball forecasting the future because the CFOs are telling us their business plans and we're aggregating those business plans across companies giving us a sense of where the economy is going...

Since 2009 the outlook has increased and looked better and better until about the last three-quarters where it's now started to come back down. So I think we've gone from what I would call a moderately strong outlook maybe a year ago to a moderate outlook - get rid of that word 'strong'...we're still expecting positive growth but basically now we're talking more 1-2% GDP growth whereas a year ago we might've been talking 2-3%..."

Scroll down to read more of his comments, or click to hear a preview of his interview below. Subscribers can access the full audio by clicking here or via podcast on their mobile device.

"When we asked the CFOs in particular 'Why has the probability of recession gone up?'…they listed several items. Number 1 was the slowdown in China, which was the top risk by far. Number 2 was political turmoil here in the US. Number 3 was the possibility of a stock market correction and number 4 was the low price of oil...in the last ten days the price of oil has come up a bit and the stock market looks reasonable but...the CFOs have this outlook that's more 9-12 months out for the questions that we ask them on the survey and so, looking past some of the daily data if you will, I still take what they said seriously on the survey that there are significant risks to the US economy right now.

We are looking moderate - that's good - but there are downside risks and if any one of these was to really take off in a negative way then that could have adverse effects on the economy and, let's hope not, but that could pull the US into recession...

If the minimum wage goes up, companies will find ways to minimize or reduce the amount of employees they need… And so what we found is that companies said they could reasonably accommodate a minimum wage of say $8.75, but by the time you get to something close to $15/hour the majority of companies say they would reduce their workforce - either current workers by laying people off - or…that they would continue the long-run move away from labor towards technology and machinery..."