 Whether or not the U.S. actually goes into a recession this year, people with their fingers on the pulse of the economy expect the rest of 2008 to be challenging.
Another example of growing pessimism emerged last week in the first-quarter Duke University/CFO Magazine Global Business Outlook survey. In the survey of more than 1,000 chief financial officers worldwide, three-fourths said the economy is either currently in recession or will be in one at some point during this year. Nearly 90 percent of CFOs said they don’t expect a rebound until 2009.
Meanwhile, economists in the latest Wall Street Journal forecasting survey “are increasingly certain the U.S. has slid into recession, a view reinforced by new data showing a sharp drop in retail sales last month,” the newspaper reported last week.
Here in Michigan, there have been moderately positive signs of life in the economy, as measured by two indexes. But the upbeat numbers are coupled with muted expectations from economists and purchasing managers.
Among the recent reports:
- The monthly Metro Detroit Purchasing Managers Composite Index, compiled by Walsh College’s David Allardice, rose 3.2 points, to 53.1 in March. That was the highest it had been in four months.
- Comerica Bank’s Michigan Business Activity Index rose two points in January to 103. However, while the Michigan economy showed a modest rebound compared to December, the January reading of the index was down about 1/2 percent from the average for all of 2007.
Allardice, an economist and director of doctoral programs at Walsh, says there will be “no quick turnaround” for the Michigan economy. And that realization is reflected in the confidence levels expressed in the purchasing managers survey. But not all companies are equally pessimistic, he said.
“If you are non-automotive in Michigan, you’re probably less pessimistic than if you’re on the automotive side,” Allardice said.
Allardice said he expects the economy to be slow until at least late this year. Comerica Chief Economist Dana Johnson, says that, despite the slight improvement in January, the Michigan economy faces challenges.
“With light vehicle sales weak nationally and the Michigan-based car companies already announcing production cuts for the spring,” Johnson said in a statement issued with the index results, “the weakness in the U.S. economy is virtually certain to spill over to Michigan in the period ahead.”
A Number of Concerns
Allardice said his survey showed that high energy prices, rising commodity prices and the potential for a national recession appear to be the primary concerns among purchasing managers in metro Detroit. All that, he said, is causing some companies to “adjust their operations.”
The potential upside, he said, is that the falling U.S. dollar has some companies considering a shift toward doing more work in the U.S., which could create some new jobs and boost the economy. But, companies that need to buy commodities or supplies in other countries “will be really scrambling” to control costs.
In the Duke/CFO Magazine survey, concerns about weak consumer demand, credit markets, housing market fallout and high fuel costs topped the list of CFO 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. The CFOs also expect inflation to increase to 3 percent this year.
Among the other findings in the Duke/CFO Magazine survey:
- The Fed's interest rate cuts have failed to influence business confidence. Seventy-four percent of CFOs say the Fed cuts have had no impact on their business.
- Among firms that export their products, 86 percent say that they expect their company's foreign activity to offset weak U.S. demand. Half of multinational firms say exports will help moderately or a large amount.
- Fifty-four 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.
- Capital spending is expected to increase only 3.3 percent. Price inflation is expected to rise 3 percent over the next 12 months.
In the Wall Street Journal survey, more than 70 percent of respondents said the economy is in recession now. Almost half the economists surveyed said a recession this year could be worse than the 2001 and 1990-91 downturns. They expect nonfarm payrolls to grow by an average of just 9,000 jobs a month for the next 12 months – down from a previously expected 48,500.
Additional Resources
- For more results, from the Duke/ CFO Magazine survey, visit www.cfosurvey.org.
- For the full Wall Street Journal report about its forecasting survey, click here.
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