What Top CEOs are Saying About the Economy
One of the requirements of being a publicly traded company is that every quarter of the year the CEO or some other designated person on behalf of the company has to stand before investors and analysts on quarterly earnings calls and talk about the outlook for their business and the economy as a whole. And then once a year they have to speak openly (and often take the slings and arrows) before investors at their companies’ annual meetings.
CEOs and CFOs of publicly traded companies are ethically and legally bound to give accurate guidance as to their future of their businesses. If they conceal information, there can be both financial and legal consequences. So although CEOs are imperfect human beings with a vested interest in the success (and share prices) of their companies, which makes them biased, misleading, and sometimes just plain wrong, they also have an inside seat and access to mountains of data that helps them to identify trends and pitfalls, which means they are often able to see things happening in the economy long before the average person. That is why when CEOs talk, people listen and markets react.
Here is a sampling of what some of the most influential CEOs have been saying of late on these earnings calls and during media interviews and other public statements:
Raj Subramaniam - CEO of FedEx
FedEx recently made a preannouncement of its quarterly earnings report, which companies will sometimes do if their actual results differ too much unexpectedly from their previous quarterly guidance. This was exactly the case here, as FedEx reported earnings of $3.14/share, far below analyst expectations of $5.14/share. FedEx shares immediately tumbled, but it was the comments of CEO Raj Subramaniam that really spooked the market after he told CNBC in response to a question about whether the global economy was headed for a worldwide recession, “I think so. These numbers don’t portend very well…we are seeing volume decline in every segment around the world.” He added, “We are a reflection of everybody else’s business,” which, in other words, means that FedEx is a bellwether for the overall economy and if FedEx is starting to struggle, it means the rest of the world economy is too. FedEx stock dropped 21% in one day on Friday, wiping out $11 billion in value and making it the worst single-day for the company since 1980, per Bloomberg. The rest of the market was down significantly, too.
Jamie Dimon - CEO of JPMorgan Chase
In June, JPMorgan Chase CEO Jamie Dimon warned investors that the economy was facing a “hurricane” in the form of rising interest rates, the end of a long period of increased liquidity due to quantitative easing, and other variables like the Russian invasion of Ukraine. “You’d better brace yourself…JPMorgan is bracing ourselves and we’re going to be very conservative with our balance sheet….that hurricane is right out there, down the road, coming our way.”
Jane Fraser - CEO of Citigroup
Jane Fraser, who happens to be the first female CEO of a major Wall Street Bank, said in May that the three R’s would control the economic outlook for the year ahead: rates, Russia, and recession. More recently, in comments during testimony on Capitol Hill, she noted, “We’re very concerned about the high prices consumers are facing in America and indeed around the world,” adding dour comments that the rapid and significant recent interest rate hikes would cause additional economic hardship in the Fed’s efforts to reign in inflation.
Corie Barrie - CEO of Best Buy
On a positive note, Corie Barrie, CEO of Best Buy, reported in a recent earnings call that global supply chains are loosening and inventory is easier to obtain, but on the other hand inflation costs are hitting all areas of their business. Barrie said, “The macro environment has been more challenged and uneven than expected due to several factors. And that has put more pressure on our industry, changing the trajectory of our business versus our original plan.” In other words, like FedEx, Best Buy is revising its previous estimates for revenue in months ahead, attributing the change to, among other things, consumers tightening their belts, saying, “We did not expect…a changing macro environment where consumers are dealing with sustained and record-high levels of inflation in some of the most fundamental parts of their daily lives, like food,” which makes for “an uneven sales environment.”
Sundar Pichai - CEO of Google
In an internal memo to Google employees in July, Google CEO Sundar Pinchai wrote:
The uncertain global economic outlook has been top of mind. Like all companies, we’re not immune to economic headwinds. Something I cherish about our culture is that we’ve never viewed these types of challenges as obstacles. Instead, we’ve seen them as opportunities to deepen our focus and invest for the long term.
He added, and what was really the big takeaway from the memo, that Google would be enacting a hiring freeze other than for certain key technical positions. This matches what numerous other tech companies have been doing of late as well. Per The Verge:
Google isn’t the only company that’s had to recently pump the brakes on hiring people: Uber has said it’ll have to be “hardcore about costs,” Meta sent a memo to employees warning of “serious times” and fierce headwinds after implementing hiring freezes for some teams, and Spotify and Snap have also announced plans to slow hiring. Other companies, like Twitter, Netflix, and GameStop, have recently decided to lay off employees.
Elon Musk
Elon Musk, the world’s richest person, is on record and frequently tweets that the Federal Reserve is raising rates too much, too fast.
When the above clip of Wharton School of Business Professor Jeremy Siegel surfaced on Twitter this week in which Siegel lambasted the Fed for hiking rates too much, which he believes will most likely send the economy into an unnecessarily deep recession (a perspective that more or less matches my own, by the way), Musk replied as such:
Musk has actually said the Fed should be dropping rates right now instead of increasing them by 0.75% as they have been doing month over month, and that further rate hikes put the entire economy at peril.
Is Anybody Feeling Positive These Days?
The tone of most of the CEOs of major American companies particularly those with an international market is undeniably cautious if not outright pessimistic. Notable exceptions exist in the travel and entertainment markets, industries that have done very well of late thanks to pent-up demand still rippling out from the end of the pandemic. In Great Britain, Ryanair CEO Michael O’Leary said that his company will grow stronger during a recession because, according to O’Leary, “People in a recession will get much more price sensitive,” so he expects “a much larger number of people trading down from British Airways and easyJet” to Ryanair.
Here in the United States, Delta CEO Ed Bastian also offered a bullish perspective recently, telling a group in Detroit, “There's no recession going on in the air travel business. If anything, there's more demand than (we) can possibly handle. What you're seeing is a big shift coming out of COVID."
What Comes Next
In the weeks ahead, several other major bellwether companies will release earnings, including McDonalds, Coca Cola, Disney, and Walmart. It will be interesting to see what their CEO’s perspectives are, especially as things are changing rapidly - interest rates are rising significantly with each passing month and the stock market is getting clobbered. If you’ve been sitting on cash, this is probably a good time to get into the market as a lot of the bad news is baked in. But for everyone who participates in the economy in various ways, which is to say all of us, there are certainly plenty of storm clouds around right now and reasons for caution.
Ben Sprague lives and works in Bangor, Maine as a Senior V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com. Follow Ben on Twitter, Facebook, or Instagram. Opinions and analysis do not represent First National Bank.
Managing a business and managing a national macro-economy require rather different perspectives and skillsets. Business leaders will always favor short-term returns, whereas macro-economists will favor long-term stability.