Survey Overview - The Duke University/CFO Global Business Outlook provides some very interesting insights on where the US economy and the corporate sector are headed. In my view, the corporate sector’s view on the economy is always more realistic as compared to the government.
The chart below gives some of the key financial metrics outlook derived from the CFO survey (March 2016). The survey includes results from 629 US firms and therefore the sample size is excellent for necessary conclusions.
Key Findings - It is clear from the chart that CFO expectation on earnings growth has slumped in March 2016 as compared to prior quarter expectations. It is not surprising with 31% of CFOs expecting that US will be in recession by year-end 2016.
Another important point that emerged from the CFO survey was that there will be significant intended consequences if minimum wages in the US were increased to $10 or $15 per hour. The most obvious consequence would be job cuts and shift towards labour saving technology.
My Opinion – I believe that the global economy is headed towards significant slowdown and potential recession in 2016. I had earlier discussed some economic data that points to renewed slowdown in China. I am mentioning China specifically as 59% of the CFOs believe that slowdown in China is the key risk that can translate into recession in the US. Therefore, investors need to closely watch Chinese growth data in the coming months as it has implications on other economies, industrial commodities and crude oil.
Investment Perspective – It’s time to remain cautious and avoid fresh exposure to equities. Profit booking can be considered in stocks delivering strong returns. Gold is an attractive asset class because slowdown implies more monetary easing, which will take gold higher. While crude has trended higher on potential production freeze, global slowdown can offset that positive. Overall, relatively high exposure to cash and gold advisable until there is more clarity on the economic direction globally.