September 2019 Duke/CFO Global Business Outlook Survey – Notable Excerpts

On September 18, 2019 the September 2019 Duke/CFO Global Business Outlook was released.  It contains a variety of statistics regarding how CFOs view business and economic conditions.

In this CFO survey press release, I found the following to be the most notable excerpts – although I don’t necessarily agree with them:

The CFO Optimism Index, which historically has been an accurate predictor of hiring and GDP growth, fell this quarter. Fifty-five percent of CFOs have become more pessimistic compared to the 2nd quarter this year, far outnumbering the 12 percent who say they have become more optimistic.

also:

More than half (53 percent) of U.S. CFOs believe that the U.S. will be in an economic recession by the third quarter of 2020, and 67 percent predict a recession by the end of 2020.

also:

Economic uncertainty has displaced difficulty hiring and retaining qualified employees as the top concern among U.S. CFOs. Recruiting and retaining talent remains the second-most pressing concern. Other prominent concerns include government policies, data security and the rising cost of employee benefits.

also:

Business spending is often weak in the face of economic uncertainty, which is what the survey finds in the U.S., with a less than 1 percent increase in capital spending expected over the next 12 months. This is the lowest growth since September 2016, and the second-lowest growth since December 2009.

The CFO survey contains two Optimism Index charts, with the bottom chart showing U.S. Optimism (with regard to the economy) at 63, as seen below:

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It should be interesting to see how well the CFOs predict business and economic conditions going forward.   I discussed past various aspects of this, and the importance of these predictions, in the July 9, 2010 post titled “The Business Environment”.

(past posts on CEO and CFO surveys can be found under the “CFO and CEO Confidence” label)

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with many of the consensus estimates and much of the commentary in these forecast surveys.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 3006.73 as this post is written

Deloitte “CFO Signals” Report Q3 2019 – Notable Aspects

Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 3rd Quarter of 2019.

As seen in page 2 of the report, there were 172 survey respondents.  As stated:

“Each quarter (since 2Q10), CFO Signals has tracked the thinking and actions of CFOs representing many of North America’s largest and most influential companies.

All respondents are CFOs from the US, Canada, and Mexico, and the vast majority are from companies with more than $1 billion in annual revenue. For a summary of this quarter’s response demographics, please see the sidebars and charts on this page. For other information about participation and methodology, please contact nacfosurvey@deloitte.com.”

Here are some of the excerpts that I found notable:

from page 3:

Perceptions

How do you regard the status of the North American, European, and Chinese economies? Perceptions of North America fell to a six-year low, with 68% of CFOs rating current conditions as good (down from 79% last quarter), and 15% expecting better conditions in a year (down from 24%). Perceptions of Europe slid to just 5% and 2%; China sits at 20% and 11%. Page 6.

What is your perception of the capital markets? Eighty-seven percent of CFOs say debt financing is attractive (up from 77%). Equity financing attractiveness fell for both public (from 40% to 31%) and private (35% to 34%) company CFOs. Sixty-three percent say US equity markets are overvalued, about even with last quarter. Page 7.

Sentiment

What external/internal risks worry you the most? CFOs express even stronger concerns about the impact of US trade policy on global growth, and rising concerns about Brexit, the broader European economy, and the 2020 US elections. Talent is again the dominant internal concern, and there are rising concerns about data security and the need to adapt and innovate. Page 8.

Compared to three months ago, how do you feel about the financial prospects for your company? The net optimism index declined from last quarter’s +9 to -5 this quarter—the first negative reading in nearly seven years. Twenty-six percent of CFOs express rising optimism (30% last quarter), and 31% express declining optimism (21% last quarter). Page 9.

Expectations

What is your company’s business focus for the next year? CFOs indicate a bias toward revenue growth over cost reduction (51% vs. 22%), investing cash over returning it (48% vs. 18%), current offerings over new ones (44% vs. 35%), and current geographies over new ones (62% vs. 22%). Page 10.

How do you expect your key operating metrics to change over the next 12 months? YOY revenue growth expectations rose from 3.8% to 4.3%. Earnings growth slid from 6.1% to 5.6% (a new survey low), while capital spending fell from 7.7% to 3.6%, and hiring fell from 1.9% to 1.6% (both sit at three-year lows). Dividend growth rose from 3.7% to 3.9%. Page 11.

from page 9:

Sentiment

Optimism regarding own-companies’ prospects

Own-company optimism turned negative for the first time in nearly seven years. Canada is highest at just +10, with the US and Mexico overwhelmingly negative at -4 and -50, respectively.

Net optimism peaked in 1Q18 at +54, then declined sharply through the rest of the year. It rebounded somewhat in the first part of 2019, but remained among the lowest levels from the prior three years.

Last quarter, it retreated to just +9, and this quarter it slid sharply to -5, the first negative reading since the fourth quarter of 2012. Twenty-six percent of CFOs expressed rising optimism (down from 30%), while 31% cited declining optimism (up from 21%).

Net optimism for the US declined sharply from last quarter’s +15 to just -4, the lowest level in nearly seven years. Canada rose from last quarter’s -25 to +10. Mexico declined from last quarter’s dismal -43 to -50, the second lowest level in the last two years.

Healthcare/Pharma, Manufacturing, Financial Services, and Services were all overwhelmingly pessimistic (-36, -31, -12, and -7, respectively). Technology was again most optimistic at +53; Retail/Wholesale and Energy/Resources were only mildly positive.

Please see the full report for industry-specific charts. Note that industry sample sizes vary and that results are volatile for the smallest. Due to a small sample size, T/M/E was not used as a comparison point.

from page 11:

Expectations

Growth in key metrics, year-over-year

Earnings expectations slid to a new survey low, and capital spending and hiring declined to three-year lows; Manufacturing led most declines, but Retail/Wholesale and Technology were relative bright spots.

Revenue growth rose from 3.8% to 4.3%, but sits at its second-lowest level since 4Q16. The US rose, but is near its two-year low. Canada rose to just above its two-year average. Mexico rose, but remains below its two-year average. Technology leads; Manufacturing and Healthcare/Pharma trail.

Earnings growth declined from 6.1% to 5.6%, the lowest level in survey history. The US fell to a survey low. Canada rose to well above its two-year average. Mexico dipped to a four-year low. Technology and Retail/Wholesale lead; Manufacturing and Healthcare/Pharma trail.

Capital spending growth fell from 7.7% to just 3.6%, tying the three-year low. The US slid to a two-year low. Canada rose, but remains below its two-year average. Mexico slid to a six-year low. Financial Services, Healthcare/Pharma, and Retail/Wholesale are highest; Energy/Resources and Manufacturing are lowest.

Domestic personnel growth slid from 1.9% to 1.6%, the lowest level since 3Q16. The US fell to its lowest level in nearly three years. Canada slid to well below its two-year average. Mexico rose to just above its two-year average. Technology and Retail/Wholesale lead; Energy/Resources trails.

Dividend growth rose from 3.7% to 3.9%, but remains well below the two-year average.

Please see the full report for industry-specific charts. Note that industry sample sizes vary and that results are volatile for the smallest. Due to a small sample size, T/M/E was not used as a comparison point.

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Among the various charts and graphics in the report are graphics depicting trends in “Own Company Optimism” on page 9 and “Economic Optimism” found on page 6.

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I post various business and economic surveys because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with many of the consensus estimates and much of the commentary in these surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3006.73 as this post is written

Chicago Fed National Financial Conditions Index (NFCI)

The St. Louis Fed’s Financial Stress Index (STLFSI) is one index that is supposed to measure stress in the financial system.  Its reading as of the September 12, 2019 update (reflecting data through September 6, 2019) is -1.303.

Of course, there are a variety of other measures and indices that are supposed to measure financial stress and other related issues, both from the Federal Reserve as well as from private sources.

Two other indices that I regularly monitor include the Chicago Fed National Financial Conditions Index (NFCI) as well as the Chicago Fed Adjusted National Financial Conditions Index (ANFCI).

Here are summary descriptions of each, as seen in FRED:

The National Financial Conditions Index (NFCI) measures risk, liquidity and leverage in money markets and debt and equity markets as well as in the traditional and “shadow” banking systems. Positive values of the NFCI indicate financial conditions that are tighter than average, while negative values indicate financial conditions that are looser than average.

The adjusted NFCI (ANFCI). This index isolates a component of financial conditions uncorrelated with economic conditions to provide an update on how financial conditions compare with current economic conditions.

For further information, please visit the Federal Reserve Bank of Chicago’s web site:

http://www.chicagofed.org/webpages/publications/nfci/index.cfm

Below are the most recently updated charts of the NFCI and ANFCI, respectively.

The NFCI chart below was last updated on September 18, 2019 incorporating data from January 8, 1971 through September 13, 2019, on a weekly basis.  The September 13 value is -.72:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed September 18, 2019: 
http://research.stlouisfed.org/fred2/series/NFCI

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The ANFCI chart below was last updated on September 18, 2019 incorporating data from January 8, 1971 through September 13, 2019, on a weekly basis.  The September 13 value is -.68:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed September 18, 2019: 
http://research.stlouisfed.org/fred2/series/ANFCI

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I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3005.70 as this post is written

Trends Of S&P500 Earnings Forecasts

S&P500 earnings trends and estimates are a notably important topic, for a variety of reasons, at this point in time.

FactSet publishes a report titled “Earnings Insight” that contains a variety of information including the trends and expectations of S&P500 earnings.

For reference purposes, here are two charts as seen in the “Earnings Insight” (pdf) report of September 13, 2019:

from page 12:

(click on charts to enlarge images)

from page 13:

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2997.96 as this post is written

S&P500 EPS Forecasts 2019 Through 2021 And Previous Actual Figures

As many are aware, Refinitiv publishes earnings estimates for the S&P500.  (My other posts concerning S&P earnings estimates can be found under the S&P500 Earnings label)

The following estimates are from Exhibit 24 of the “S&P500 Earnings Scorecard” (pdf) of September 16, 2019, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts.  For reference, the Year 2014 value is $118.78/share; the Year 2015 value is $117.46; the Year 2016 value is $118.10/share; the Year 2017 value is $132.00/share; and the Year 2018 value is $161.93:

Year 2019 estimate:

$164.38/share

Year 2020 estimate:

$182.85/share

Year 2021 estimate:

$200.23/share

_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2996.54 as this post is written

Standard & Poor’s S&P500 EPS Estimates 2019 & 2020 – September 12, 2019

As many are aware, Standard & Poor’s publishes earnings estimates for the S&P500.  (My posts concerning their estimates can be found under the S&P500 Earnings label)

For reference purposes, the most current estimates are reflected below, and are as of September 12, 2019:

Year 2019 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $161.56/share

-From a “top down” perspective, operating earnings of N/A

-From a “bottom up” perspective, “as reported” earnings of $145.90/share

Year 2020 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $181.11/share

-From a “top down” perspective, operating earnings of N/A

-From a “bottom up” perspective, “as reported” earnings of $166.38/share

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3007.39 as this post is written

The September 2019 Wall Street Journal Economic Forecast Survey

The September 2019 Wall Street Journal Economic Forecast Survey was published on September 12, 2019.  The headline is “Economists Don’t See Path to 3% Growth in 2019.”

I found numerous items to be notable – although I don’t necessarily agree with them – both within the article and in the “Economist Q&A” section.

An excerpt:

The Trump administration’s goal of achieving economic growth of 3% or better is looking increasingly remote this year, according to forecasters surveyed by The Wall Street Journal.

Private-sector economists surveyed in recent days expect U.S. gross domestic product to expand an inflation-adjusted 2.2% this year on average, measured from the fourth quarter a year earlier. Forecasters expect economic growth will slow to 1.7% in 2020 and will be 1.9% in 2021.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 34.79%. The individual estimates, of those who responded, ranged from 10% to 67%.  For reference, the average response in August’s survey was 33.57%.

As stated in the article, the survey’s 60 respondents were academic, financial and business economists.  Not every economist answered every question.  The survey was conducted September 6 – September 10, 2019.

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Economic Forecasts

The current average forecasts among economists polled include the following:

GDP:

full-year 2019:  2.20%

full-year 2020:  1.68%

full-year 2021:  1.85%

full-year 2022:  1.99%

Unemployment Rate:

December 2019: 3.67%

December 2020: 3.87%

December 2021: 4.09%

December 2022: 4.13%

10-Year Treasury Yield:

December 2019: 1.69%

December 2020: 1.97%

December 2021: 2.24%

December 2022: 2.41%

CPI:

December 2019:  2.01%

December 2020:  2.01%

December 2021:  2.15%

December 2022:  2.10%

Crude Oil  ($ per bbl):

for 12/31/2019: $56.58

for 12/31/2020: $56.45

for 12/31/2021: $58.41

for 12/31/2022: $58.36

(note: I highlight this WSJ Economic Forecast survey each month; commentary on past surveys can be found under the “Economic Forecasts” label)

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3009.57 as this post is written

Charts Indicating Economic Weakness – September 2019

U.S. Economic Indicators

Throughout this site there are many discussions of economic indicators.  At this time, the readings of various indicators are especially notable.  This post is the latest in a series of posts indicating U.S. economic weakness or a notably low growth rate.

While many U.S. economic indicators – including GDP – are indicating economic growth, others depict (or imply) various degrees of weak growth or economic contraction.  As seen in the August 2019 Wall Street Journal Economic Forecast Survey the consensus (average estimate) among various economists is for 2.2% GDP growth in 2019 and 1.8% GDP growth in 2020.  However, there are other broad-based economic indicators that seem to imply a weaker growth rate.

As well, it should be remembered that GDP figures can be (substantially) revised.

Charts Indicating U.S. Economic Weakness

Below are a small sampling of charts that depict weak growth or contraction, and a brief comment for each:

Total Federal Receipts

“Total Federal Receipts” growth continues to be intermittent in nature since 2015.  As well, the level of growth does not seem congruent to the (recent) levels of economic growth as seen in aggregate measures such as Real GDP.

“Total Federal Receipts” through August had a last monthly value of $227,965 Million.  Shown below is the measure displayed on a “Percent Change From Year Ago” basis with value 4.0%, last updated September 12, 2019:

source:  U.S. Department of the Treasury. Fiscal Service, Total Federal Receipts [MTSR133FMS], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed September 12, 2019: 
https://fred.stlouisfed.org/series/MTSR133FMS

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The Chicago Fed National Activity Index (CFNAI)

A broad-based economic indicator that has been implying weaker growth or mild contraction is the Chicago Fed National Activity Index (CFNAI).

The August 2019 Chicago Fed National Activity Index (CFNAI) updated as of August 26, 2019:

The CFNAI, with current reading of -.36:

source:  Federal Reserve Bank of Chicago, Chicago Fed National Activity Index [CFNAI], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed September 11, 2019:
https://fred.stlouisfed.org/series/CFNAI

The CFNAI-MA3 (CFNAI three-month moving average) with current reading of -.14:

source:  Federal Reserve Bank of Chicago, Chicago Fed National Activity Index: Three Month Moving Average [CFNAIMA3], retrieved from FRED, Federal Reserve Bank of St. Louis; September 11, 2019:
https://fred.stlouisfed.org/series/CFNAIMA3

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The Aruoba-Diebold-Scotti Business Conditions Index (ADS Index)

Another broad-based economic indicator that seems to imply a weaker recent growth rate is the ADS Index.

Among the broad-based economic indicators that seem to imply subdued growth or decline is that of the Aruoba-Diebold-Scotti Business Conditions Index (ADS Index.)  Below is a chart of the index from September 7, 2017 through September 7, 2019, with a value of -.1223, as of the September 12 update:

source:  Federal Reserve Bank of Philadelphia, Aruoba-Diebold-Scotti Business Conditions Index (ADS Index)

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The Yield Curve

Many people believe that the Yield Curve is a leading economic indicator for the United States economy.

On March 1, 2010, I wrote a post on the issue, titled “The Yield Curve As A Leading Economic Indicator.”

While I continue to have the stated reservations regarding the “Yield Curve” as an indicator, I do believe that it should be monitored.

Various portions of the U.S. Yield Curve have been showing intermittent or prolonged inversions. Below is the spread between 10-Year Treasury Constant Maturity and the 3-Month Treasury Constant Maturity from 1982 through the September 11, 2019 value, showing a value of -.21: (10-Year Treasury Yield (FRED DGS10) of 1.75% , 3-Month Treasury Yield (FRED DGS3MO) of 1.96%):

source: Federal Reserve Bank of St. Louis, 10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity [T10Y3M], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed September 12, 2019: https://fred.stlouisfed.org/series/T10Y3M

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Alternate Growth Trend Measures

Another facet of economic activity is seen in the ratio of the  Conference Board’s Coincident Composite Index to the Lagging Composite Index.  I interpret the trends seen in this measure to be disconcerting, as the ratio has generally been sinking for years:

source:  Haver’s August 22, 2019 post (“U.S. Leading Economic Indicators Strengthen“)

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Other Indicators

As mentioned previously, many other indicators discussed on this site indicate economic weakness or economic contraction, if not outright (gravely) problematical economic conditions.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 3009.57 as this post is written