Elon Musk isn’t the only one who wishes he had a crystal ball to see what the future holds. Many prominent executives admitted on second-quarter earnings calls that the direction of the U.S. economy is difficult to judge, although many executives are optimistic that the United States will avoid a severe recession this year, or even next year.
Musk said on Tesla’s (TSLA) earnings call: “Sometimes it feels like the world economy is going to collapse, but then the next day, everything seems to be fine again, and frankly, I don’t I don’t know what’s going on right now.”
Many investors can relate to what Musk said, and so do the CEOs of many companies. Dominic Ng, CEO of East West Bank (EWBC), called the macroeconomic situation “full of uncertainty” during the second quarter earnings conference call.
Wu Jianmin said: “Those who say they know what will happen in the future are kidding themselves, right? We really don’t know, and with interest rates rising so sharply, I thought a recession should have come, but that’s not the case.”
Some CEOs of leading companies in the financial industry and large companies in other industries are more optimistic. They expect the U.S. economy to achieve a “soft landing”, that is, the Federal Reserve will reduce inflation to its 2% target without hitting demand and triggering a severe recession.
Chris Gorman, CEO of financial services company KeyCorp (KEY), said on an earnings call on July 20: “I think the Fed will succeed in achieving a soft landing, which may happen in 2024.”
PNC Financial Services (PNC) CEO Bill Demchak said: “I think the U.S. economy will have a soft landing.”
Fifth Third Bancorp (FITB) CEO Tim Spence also believes that the U.S. economy will have a soft landing. The economy is “very likely” to achieve a soft landing.
Hilton Hotels (HLT) raised its full-year performance forecast, with CEO Chris Nassetta saying he believes the current growth momentum is “very good.” Nassetta expects the U.S. economy to slow, but more like a soft landing.
The reason behind CEOs becoming more optimistic about the economic outlook is the recent economic data. The initial value of the U.S. gross domestic product (GDP) growth rate in the second quarter was much higher than expected, with a seasonally adjusted annual rate of 2.4%. This was mainly due to the increase in corporate investment.
Fast-food giant McDonald’s (MCD) CEO Chris Kempczinski recently told investors that McDonald’s is exploring new markets for future store layouts. “A lot of places in the United States are significantly underdeveloped, and that brings us a lot of development opportunities,” Kempczinski said.
Cooling inflation is also an important reason why CEOs are more optimistic about the economic outlook. The U.S. consumer price index (CPI) fell to 3% year-on-year in June, while the unemployment rate remained close to historical lows. Citigroup (C) CEO Jane Fraser said: “In the United States, a tight labor market continues to delay the arrival of this elusive recession to later this year or 2024, and strong demand in the service industry has brought a support.”
Although consumer spending slowed in the latest quarter, many CEOs believe that consumer spending is quite resilient. Chipotle Mexican Grill (CMG) CEO Brian Niccol said recently: “Both low-income consumers and high-income consumer spending are showing strong momentum, and we are not seeing any weakness in lower-income consumer spending. , their spending continues to increase.”
CEOs of some other companies believe that the U.S. economy may fall into recession, but they emphasize that the recession will be mild.
Andy Cecere, CEO of U.S. Bank (USB), said on an earnings call on July 19: “We believe that the economy will either have a soft landing or a mild recession, which is equally likely. Our model shows that if the economy does fall into recession, it will be a short-lived and mild recession that will occur either at the end of this year or in early 2024.” Ceccheri also believes that before the end of this year The Fed will raise interest rates one more time, he said: “We think the Fed is getting closer to ending the rate hikes.”
Data from market intelligence search company AlphaSense shows that so far in the second quarter, company executives have mentioned a “soft landing” in earnings calls. The number of words increased by 97% compared with the first quarter of this year.
JPMorgan Chase (JPM) CEO Jamie Dimon didn’t talk much about the issue during the earnings call, but he emphasized that U.S. consumers are “in good shape,” which is good news. “Even if the economy falls into a recession, some areas of the economy are still healthy, such as low debt levels and housing prices that remain strong,” Dimon said.
But Dimon said the headwinds facing the U.S. economy – challenges posed by the Russia-Ukraine conflict, sharp swings in energy prices and quantitative tightening – are “considerable” and “unprecedented.”
Dimon said: “We don’t know whether these factors will lead to a soft landing, a mild recession, or a severe recession (hard landing) in the U.S. economy.”