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On the Lips of CEOs

Although the US labour market is going strong, CEOs are talking more and more about the impending recession. For example, James S. Tisch, the CEO of Loews Corporation, a massive insurance and industrial multinational, noted during an earnings call that he expected a recession, but not one as “cataclysmic as ’08 or ‘09”. And Mr Tisch is not alone. Howard Schulz, the interim CEO of Starbucks, stated that the company is “highly concerned and humbled by the environment”. The environment being the business and economic environment that could drastically affect sales at the coffee chain. Similarly, William J. Hornbuckle, the CEO of MGM Resorts International, stated recently that he and his executive team are “not blind” and “keenly aware of the impact of inflation” when discussing the potential for a recession.

The R-word

When CEOs are speaking, whether it is to analysts, investors, or whomever else, they are increasingly using the “R-word”. CEOs of major corporations tend to focus on the positive, but it seems that the impending “recession” is not something that they can ignore. Indeed, many are preparing themselves, their company, and their investors for what is most definitely to come: less profits. Right now, corporations in the United States are experiencing record profits. Even the airlines are making fantastic money. But there are signs that those profits will be slowing, especially for certain industries more directly impacted by inflation. Many companies missed their lofty Q3 earnings goals, goals that had been adjusted higher because of an exceptionally strong Q1 and Q2 streak. During earnings calls of S&P 500 companies, “recession” was said uttered by 165 out of 409 companies. Just one year ago, that number was only 42.

The Aftermath

Now that the Federal Reserve has increased interest rates yet again in an attempt to fight ever-increasing inflation, recession fears are worse than ever. Jerome Powell, the Fed chair, no longer believes that a “soft landing” – where inflation goes away without the economy going into a recession – is less and less possible. But there is some good data. In Q3, the American economy grew by a 2.6 per cent, which was better than expected. Likewise, the Bureau of Labour Statistics reported that employers added over 261,000 jobs in October, another figure that beat expectations. The economy, however, is clearly going to slow, which is the inevitable, even if delayed, consequence of Fed rate increases. The woes of the American economy are based on normal economic events and the aftermath of the pandemic, which stands in contrast to Europe, which is experiencing that aftermath while dealing with a war and resulting energy crisis. Despite an impending recession, when taking a look at the global picture, the US is in a good position.