(CNN) — Top corporate CEOs are wary of the idea that the US economy might have a soft landing following a series of historically large interest rate hikes by the Federal Reserve to combat inflation.
According to a survey of 400 leaders of large American companies conducted by the consulting firm KPMG, a surprising 91% predict a recession in the next 12 months. Additionally, the survey, released Tuesday, found that just 34% of these CEOs think the recession will be mild and short-lived.
“There has been a lot of uncertainty over the last two and a half years,” said Paul Knopp, president and CEO of KPMG US, referring to the Covid-19 pandemic and concerns regarding inflation. “Now, we have another recession looming.”
Businesses are bracing for a recession and planning to cut costs. A great way to cut costs? Job cuts. KPMG noted that more than half of CEOs are considering downsizing to deal with a recession.
But there are some (slightly) hopeful signs.
Although most CEOs think a recession will be more than a modest setback, many C-suite executives believe they are better positioned to deal with such harsh economic realities now than they were in 2008.
The collapse of Lehman Brothers, the global financial crisis, and the Great Recession led to a doubling of the unemployment rate, from 5% to 10%, between the beginning of 2008 and the end of 2009.
“There is long-term optimism regarding the US economy and the prospects for their own organizations,” Knopp said. “Companies see themselves as more resilient and better prepared.”
It’s also worth noting that companies recently faced something of a dress rehearsal for a recession when the economy briefly plunged into recession two years ago during the onset of the pandemic. The unemployment rate shot up to a record 14.7% in April 2020.
But Knopp said CEOs are clearly nervous enough regarding the short-term outlook for the economy to make changes to some longer-term spending plans. One area in particular that might be affected is investments in ESG (environmental, social and governance) efforts.
Knopp noted that even though many CEOs said they believe their businesses will improve in the long run due to environmental, social and governance initiatives, they may need to halt some of these efforts over the next year to keep costs down.
He added that companies realize there are potentially even bigger risks in cutting too many jobs and cutting spending too much.
“Companies cannot overreact in the short term because that can create problems in the long term. The pandemic has still created pressing concerns for businesses,” Knopp said. “Businesses expect the economy to quickly pick up once more following a slowdown.”
Knopp said CEOs will also pay close attention to the midterm elections and the political landscape in Washington in general before laying out long-term investment plans.
“There is real uncertainty regarding the outcome of the midterm elections and the potential for tougher tax laws and regulations,” he said.
Concerns among leaders of major companies are also apparently shared by directors of smaller companies.
A survey of midsize companies conducted last month by accounting and advisory firm Marcum LLP and Hofstra University’s Frank G. Zarb School of Business showed that more than 90% of midsize company CEOs are worried regarding a recession. More than a quarter of these CEOs said they have already started layoffs or plan to do so within the next 12 months.
