CEOs are pessimistic about the economy - should you prep for a recession?
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PricewaterhouseCoopers International (PwC Global) just published an international survey of CEO opinions regarding the economy. Slightly more than half say they are pessimistic. The greatest pessimism is in North America. Optimism is falling. Here's why that's concerning, and what people should consider.
LOS ANGELES, CA (California Network) - PwC just published their 23rd Annual global CEO Survey. In 2018, the survey reported a record level of optimism regarding global economic growth. This year, the optimism has dropped to a low level, just 27 percent. That level is the lowest since 2009.
The survey was compiled in September and October of 2019. At that time, the trade war with China was a major concern. That concern now appears resolved, which should boost optimism. But will the boost in optimism be enough?
The economy grows and contracts over time. This process is called the "business cycle." Predicting the business cycle is critical to maximizing profits and minimizing losses, so CEOs pay a lot of attention to the economic outlook, much as a ship's captain pays attention to the weather. A business that prepares itself before the recession hits, will suffer less than one that is still expanding when the economy falters. Conversely, a business that is poised to expand as the economy does will enjoy better gains.
If CEOs believe the economy is bound for a recession, they will begin sheltering their corporations from losses. This means reducing inventories, cutting production, and eliminating marginally profitable projects and departments. In other words, it means layoffs.
There is genuine concern that if enough CEOs fear recession is coming, they could bring it about by making cutbacks. The good news is, most businesses try to rely on metrics and hard data before making big moves. But forecasting the economy is more art than science.
The ordinary citizen on Main Street can do little about what happens on Wall Street or in the boardrooms of thousands of major corporations. But they should pay attention to the economic forecast. Having advance notice of a layoff, or some other economic change can be as valuable to a household as it is to a business.
When the economic outlook turns gloomy, experts advise having at least three month's salary saved for an emergency fund. That way, rents and mortgages can be paid while breadwinners search for alternative employment. Being released from a job may also be an opportunity, for those who can afford the time off. Unemployment may be unpleasant, but for some it is a chance to train for a new, better career. If a person suspects their current employer is about to make cuts or close their doors, it is better to start looking now than to wait for the pink slip.
Households can also look for ways to reduce their bills and build savings. Cheaper cars, more cooking at home, and putting off discretionary purchases may help. During a recession, labor tends to be cheap, and cash is king. Prices on many big-ticket items may be slashed. Projects which require manpower may be cheaper during a downturn.
It's also important to build and maintain social connections. Childcare and babysitting, carpooling, and all kinds of cooperative activity can help many families weather a recession.
People should not neglect their parish communities either, since churches will see more activity during difficult times. Demands for help will go up, as well as an increased need to accommodate the influx of believers who turn to faith during hard times. At the same time, donations to parishes tend to fall. Those with the means to help and give more should consider doing so.
There's no assurance of a recession in 2020. Business cycles are difficult to forecast. Already, the current cycle of expansion is the longest in history, having lasted more than a decade. However, the nature of business is such that it cannot last forever. Given that a recession becomes more likely with time, it pays to prepare now, or at least to have a plan ready for when the time comes. Every CEO has such a plan in mind already, it makes sense every household should have one as well.
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