CFOs acknowledged the numerous challenges they continue to face, from pricing pressures and rising capital costs to regulatory instability, political uncertainty and declining consumer spending, which led them to lower their ratings of current market conditions to 6/10 in Q3 from 6.2/10 in Q2. However, many CFOs said they are confident upcoming Fed rate cuts will remove some of these obstacles and create better conditions for businesses and consumers by next year.
“Despite economic uncertainty, consumer resilience will improve with interest rate cuts,” said one CFO surveyed who expects improvement in 2025.
“Lower interest rates will stimulate demand,” another person agreed.
Expecting a recession
Much of the reasoning behind this quarter's improved outlook is rooted in the belief that upcoming interest rate cuts, and, as many expect, further cuts thereafter, will solve some of the problems companies are currently facing. But several chief financial officers say there are two key variables that could upend these projections: the outcome of the upcoming presidential election and the country falling into a recession.
“The main factor is inflation. Secondly, recent economic data points to a recession,” said the CFO of a mid-sized private industrial company. “However, the outcome of the 2024 election may change my forecast.”
“The political environment presents challenges and the election outcome will not necessarily provide relief,” said the chief financial officer of a publicly traded financial services company, who predicts the business environment will deteriorate to a three on a 10-point scale a year from now.
Overall, 55% expect the U.S. to fall into a recession. Near future, 8% say the recession is likely to be severe, which is in line with CEOs' predictions: 60% also expect a recession, with 7% expecting it to be severe.
“[We’re] “We're going to miss the soft landing and slide into a full-blown recession,” said Zac Taylor, chief financial officer at Diversified Chemical Technologies Inc. “Consumer debt will reach unprecedented levels and spending will decline. The lack of interest rate cuts has already dealt a severe blow to the global economic outlook.”
Only 35% expect a soft landing.
“Interest rates are still relatively low, unemployment is relatively flat, and the economy will still be growing, although whether we have a hard or soft landing will vary by industry and is difficult to predict,” said one consumer goods CFO.
Our data supports this view, with wide variation in recession forecasts by sector. For example, 20% of CFOs in the industrial, energy, and communication services sectors expect a severe recession in the coming months, compared with 12% in healthcare, 9% in consumer discretionary, and 0% in other sectors. In the information technology sector, one-third of CFOs expect a recession, but they expect it to be minor.
