Global CFO Survey: Recession in 2008, no relief until 2009

Both Tanta and Barry Ritholtz had read the same Global CFO Survey: Recession in 2008, no relief until 2009 (from Duke University). Tanta's opinion is that CFO Survey: No Economic Recovery Until Late 2009, and Ritholtz's opinion is CFOs: Recession has already started.

The summary of findings is:

• 54 percent of CFOs say the U.S. is now in recession, and 24 percent of the remaining CFOs say there is a high likelihood of a recession this year. CFOs do not expect the economy to recover until late 2009.
• Optimism reached its lowest point since the optimism index launched six years ago. Pessimists outnumber optimists by a nine-to-one margin, with 72 percent of CFOs more pessimistic and only 8 percent more optimistic about the U.S. economy than they were last quarter.
• Weak consumer demand and turmoil in the credit and housing markets are the top macro-concerns of CFOs. The high cost of labor ranked as the top internal concern.
• Credit conditions have directly hurt 35 percent of companies, through decreased availability of credit and higher interest rates (up 118 basis points on average). Sixty percent of firms have postponed expansion plans in response to credit market unrest.
• Capital spending is expected to increase only 3.3 percent. Price inflation is expected to rise 3 percent over the next 12 months.

Emphasis Mine

The US firms will reduce wages while keeping CapEx just ahead of inflation. So, there will no employment growth either in Department I or Department II, with a strong possibility of unemployment increasing as jobs are lost.

This is going to be a big shock to Generation Y. All of those perks will be seen as expenses and have to go in order to save costs.

Concerns in the US are:

Concerns about weak consumer demand, credit markets, housing market fallout and high fuel costs top the list of CFO macro-concerns about the U.S. economy.

High labor costs, the cost of healthcare, and supply chain risk are among the top concerns related more directly to their own companies.

Emphasis Mine

So, US firms could be amenable to socialisation of health-care costs as this would take the cost off their books and onto the tax-payers while deflecting some of the anger over the coming lay-offs. The health-care mafia could in ahead of this to minimise losses on their part, but they won't.

Of particular concern to Australia, the Asian CFOs seem to be pretty happy:

CFO optimism fell dramatically in Asia, with 43 percent of respondents becoming more pessimistic about regional economic growth than they were last quarter, and 38 percent growing more optimistic. Domestic employment should increase 8 percent in 2008, and capital spending a strong 20 percent on average. Wages should jump by nearly 10 percent.

Seventy percent of Asian CFOs think the U.S. economy is in recession, and half think that this will have a meaningful negative impact on their firm’s earnings. Sixty-four percent expect own-country domestic demand to help replace U.S. demand, and 39 percent expect Pacific Rim demand to help.

Emphasis Mine

What the Asian CFOs are really saying is that they expect the Asian economies to start to decouple from the US economy. This is very good news for Australia.