American Chief Financial Officers Predicting a U.S. Recession in 2020

Fears of 2020 U.S. Recession Grows

According to a majority of American Chief Financial Officers, the second longest economist expansion in American history is expected to hit a wall in 2020, just before the U.S. presidential election, sending the U.S. into a recession. That would be bad news for President Donald Trump, who campaigned on a promise to juice annual U.S. economic growth by four percent. It would be even worse news for U.S. and Canadian equities and the global economy.

In July, the U.S. economic expansion will become the longest on record in the U.S., trumping the previous record from the 1991-2001. Despite solid U.S. economic data, low unemployment, and stocks at record levels, many believe the U.S. will slip into a recession in 2020. This could also send the Canadian economy tumbling as well.

It’s not just analysts and investors that are worried about a U.S. recession, it’s the money behind Wall Street that isn’t sleeping well at nights. According to the Duke University/CFO Global Business Outlook survey, roughly half (48.1%) of U.S. CFOs expect the U.S. economy to be in a recession by the second quarter of 2020. A whopping 69% believe the U.S. will be dealing with a recession by the end of 2020.¹

The CFOs of publicly traded Canadian companies are, for now, a little more optimistic than their American counter parts. A third (33.3%) are less optimistic about the Canadian economy while 41.1% are more optimistic. The same number (33.3%) are less optimistic about their own company.

There are a number of reasons why American CFOs believe the U.S. will be facing a recession in 2020. In addition to political uncertainty, CFOs believe the country’s protectionist “America First” trade policy is the leading risk to a U.S. recession.

President Trump could, in an effort to make the U.S. economy look strong in the lead up to the election, back off on his trade tariff threats with China and the European Union. Similar to what he did with Mexico.

If he doesn’t, it is widely expected that the Federal Reserve will attempt to fuel economic growth and will lower interest rates. But with rates already near historic lows, it is questionable whether or not lowering its key lending rate will be enough to stimulate economic growth and keep the U.S. out of a recession.

What should investors keep an eye on to see whether or not the U.S. and Canadian economies are heading toward a recession? It’s important to pay attention to GDP, yield curve, business sentiment, borrowing conditions, temporary hiring, and payroll data. That’s just for starters.

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Sources:

1. “Duke’s Fuqua School of Business / CFO Magazine Global Business Outlook,” Duke University, June 12, 2019; https://www.cfosurvey.org/wp-content/uploads/2019/06/Q2-2019-US-Key-Numbers.pdf.

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