Discussions about the potential for recession are becoming less common among American business managers. Since the Federal Reserve began raising interest rates in early 2022, companies and investors have been preparing for how a recession might play out. Now, the topic is losing its luster after earnings announcements by the largest US companies, as it becomes increasingly likely that inflation has subsided without causing an economic contraction. Word of recession appeared in the fourth-quarter earnings calls of 47 companies in the S&P 500, according to market data platform FactSet. That's the lowest number since the end of 2021. Another way to look at it: Compared to the same three-month period last year, the word was mentioned in less than a third of the calls. Despite emerging from a period filled with economic concerns, the fourth-quarter statistic was below the five- and 10-year averages of 85 and 61, respectively. Sweeter Gossip When slack gossip appeared, the tone was often sweeter. Executives pointed to a better macroeconomic environment than they had seen in previous quarters. Everyone “seems to be more optimistic this time of year than this time last year,” said John Wall, chief financial officer of technology company Cadence Design Systems. “This time last year, everyone was asking me: When is the recession going to happen?” GDP grew at a rate of 3.2% in the last quarter of 2023. Although lower than the previous three-month period, the measure of all goods and services clearly showed that the economy is avoiding the recession that was previously considered inevitable. Rhythm Wall is not alone in its confidence. Nearly half of the two dozen chief financial officers surveyed by CNBC said they expect the Fed to control inflation without triggering a recession, a scenario known as a soft landing. Nearly 15% of respondents to a CNBC Council of CFOs survey told CNBC they believe a recession has already occurred. The improvement in sentiment came as nearly three out of four companies beat Wall Street expectations in the latest quarter, according to FactSet. One was commercial real estate developer CBRE, which topped analysts' consensus estimates for revenue and income in the fourth quarter. Chief Financial Officer Emma Giammartino said the Dallas-based company's full-year 2024 guidance is “contingent” on the Fed cutting short-term interest rates and the economy avoiding a recession. For the full year, CBRE expects between $4.25 and $4.65 in basic earnings per share. But Giammartino said this would happen much more often than usual in the second half of the year, coinciding with when the central bank is now expected to start easing interest rates. An Eye on the Consumer In recent years, consumer-facing companies have been monitoring customer behavior for signs of weakness as inflation has impacted their portfolios. At Costco, Wholesale Club said its Kirkland Signature store brand saw increased popularity as shoppers prioritized value amid rising prices. But Chief Financial Officer Richard Galanti said the downward trend in trade was short-lived. “From my perspective, people have been shifting a little bit,” Galanti told analysts earlier this month. “But that's changed. We don't see that much anymore.” Extra Space Storage said demand has continued to hold up as customers navigate their living situations, especially with 30-year mortgage rates nearing 7%. Nearly half of storage unit users said they acquire units as they move between apartments, according to CEO Joseph Margolis. “The housing market will certainly help, but it's not the only driver of demand for self-storage,” Margolis said on a call the Salt Lake City-based company held with analysts late last month. “More transformation is good.” Extra Space is cautious about expecting interest rates to fall too soon. In formulating guidance for future financial performance, the company does not expect levels to decline in time to strengthen the summer housing market. However, Margolis acknowledged that avoiding an economic downturn is good for business. Extra Space was one of 37 companies in the S&P 500 to use the term soft landing during fourth-quarter earnings calls, the highest number in at least three years, according to FactSet data. “A strong economy is always better than a weak economy,” Margolis said. “All indications now point to a softer landing than a recession.” Deal Landscape Improves After rising interest rates dampen mergers and acquisitions, executives wonder whether 2024 could mark a rebound in deal volume if the cost of borrowing falls. Host Hotels said the transaction market could benefit as improving macroeconomic sentiment leads to greater visibility on operational performance. The upscale hotel investor said that with total liquidity of $2.9 billion, it is well positioned to make acquisitions. This is a common view across sectors ranging from real estate to technology. Asphalt and concrete manufacturer Vulcan Materials, for example, has described 2024 as a year of “catch-up” in space. “While it was very quiet in 2023 with a lot of unknowns, I think it will be very busy in 2024,” CEO J. Thomas Hill said of the M&A environment. “I expect us to get some deals to the finish line.” 'Hard to predict' To be sure, some executives aren't sure they'll have a stronger year, even if a recession is avoided. Marvin Ellison, Lowe's CEO, said it is “still very difficult to predict” when demand for home improvement products will pick up. Although rising expectations of a soft landing are cause for optimism, he said it's unclear how long it will take consumers to change spending habits even after interest rates start to fall. Ellison said the decline in home sales remains a cause for concern. Mortgage levels are still too high to encourage those locked into lower interest rates to move, which is typically a natural incentive to spend on home improvements, he said. The North Carolina-based retailer has also been hurt, as Americans choose to spend on experiences like travel, football games or concerts rather than goods after the pandemic, according to the CEO. “The consumer is financially healthy, but in this post-pandemic time frame, customers are still showing a preference to spend on services,” Ellison told analysts late last month. “While we expect these trends to normalize, the timing is uncertain.”
Trending
- This Nvidia Partner Could Help AI Data Centers Cut Power Consumption in Half
- Stock Market Today: Live Updates
- Mavericks, Pelicans games leave local networks amid Diamond bankruptcy
- Increased demand for sausages could be a worrying sign for the economy.
- According to Goldman Sachs, there are two major groups of investors who love these stocks.
- Apple Announces iPhone Event on September 9
- Big Cash Moves Ahead of Fed Rate Cut, Experts Say
- Dexcom Launches Stelo, the First Over-the-Counter Continuous Glucose Monitoring Device
Talk of recession is waning in corporate America
