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America's CFOs expect a downturn, but not a recession: Study

Javier E. David
Editor focused on markets and the economy

North America’s largest companies are preparing for a downturn but remain far less convinced that a recession is at hand, according to new data released on Wednesday.

According to Deloitte’s quarterly CFO Signals report, which tracks sentiment from 158 top North American executives at companies with over $1 billion in yearly revenue, a slim 15% of the executives they surveyed are expecting an extended economic decline.

During the final months last year, “CFOs’ sentiment and expectations were becoming less optimistic,” Deloitte’s survey found, with the trend continuing into the first quarter of 2019.

“Citing worries about geopolitics, U.S. political turmoil, and trade policy, the proportion of CFOs expecting the North American economy to be better in a year fell to just 28%—half the level going into 2018,” the report added.

With that in mind, Deloitte’s data showed that companies have a low appetite for risk, and prefer debt financing over equity, which they believe to be overvalued in the current environment.

Amid evidence of deceleration in Europe, China and the U.S., expectations among CFO’s “remain among their lowest levels in the last two years,” Deloitte noted, adding that perceptions of the U.S. economy’s relative strength have “declined substantially” since early last year.

As a result, only 28% of CFOs surveyed now expect things to get better in a year, a sharp decline from the 59% who responded in the affirmative during the first quarter of 2018. Optimism about the economy is hunkered at its lowest level in 3 years, Deloitte added.

Yet even as certain sectors of the economy flash warning signs about a potential contraction, most still don’t think one will actually appear.

“The vast majority of CFOs said they expected a downturn...and not a recession,” noted Sandy Cockrell, Deloitte’s Global CFO program leader, told Yahoo Finance in an interview.

“It’s in contrast to what you see coming from economists who feel there’s a recession coming,” he said.

“But CFOs are closer to the day-to-day in terms of managing companies,” Cockrell added, suggesting that some Wall Street economy watchers warning about a deeper downturn might be too pessimistic.

Deloitte’s data found that the usually free-spending tech companies were decidedly more worried about recession than retail/wholesale, a sector that’s been decimated by retrenchment and mass store closures.

However, there were a few bright spots in the survey data. Currently CFOs favor growing revenues over cutting costs -- indicating less risk of mass layoffs and restructuring -- as well as a bias toward investment and organic growth.

For companies preparing for a recession, “the 2 levers they’d pull is reducing costs and headcount,” Cockrell told Yahoo Finance. “They’re not pulling those today, but in a downturn turning into a recession,” those actions would be top of mind, he added.

Correction: Deloitte’s survey covered 158 top executives from North America.

Javier David is an editor for Yahoo Finance. Read more: