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Long-Running U.S. Expansion May Face Headwinds in 2019

U.S. CFOs surveyed indicate capital spending, hiring could contract in worst-case scenario.

Entering 2019, the U.S. and global economy appear to be headed toward an emerging trend of a synchronized slowdown from what had been synchronized global growth.

In the U.S., an economic expansion that began in June 2009 is somewhere in the mid- to late-stages of a business cycle that’s already the second longest in U.S. history. (This overview from online financial site The Balance provides an overview of business cycles, potential indicators, and how to protect your investments during a cycle’s specific stages.)1

While cycles tend to last around five years, the current cycle at around nine-and-a-half years seems poised for a downturn. With that being said, it then becomes a matter of timing for when the next recession occurs, a topic that market professionals and business leaders don’t always fully agree on.

“We have been arguing for some time that the economy has entered the later stage of the economic expansion, a view that has become the consensus. But late-cycle phases can last quite some time, so how late is it, really?” PIMCO’s Joachim Fels and Andrew Balls write in a December 2018 Insights post. They say PIMCO’s models indicate that the probability of a U.S. recession over the next 12 months has risen 30% recently and is higher than at any point in this expansion.

They also forecast U.S. gross domestic product (GDP) growth of 2.0% to 2.5%, below consensus estimates, and see growth slowing to “a quarterly run rate” of less than 2.0% in the second half of the year. U.S. growth – “synching lower” with that of the rest of the world, as the PIMCO writers say – will result “as tighter financial conditions start to bite, fiscal stimulus fades and the recent plunge in oil prices benefits Europe, Japan and China more than the U.S., which has become a net energy exporter.”2

The CFOs’ View

Chief financial officers (CFOs) overseeing hiring and capital spending trends, have similar views, though they appear to be more pessimistic in their thinking about the probability of the U.S. economy sliding into recession.

According to a recent survey of global CFOs, nearly half (48%) of U.S. CFOs believe the U.S. will be in recession by the end of 2019, and 82% believe that a recession will have begun by 2020, according to the Duke University/CFO Global Business Outlook survey. The survey concluded on December 7 and generated responses from more than 500 CFOs – including 226 from North America.

“The end is near for the near-decade-long burst of global economic growth,” said John Graham, a finance professor at Duke’s Fuqua School of Business and director of the survey. “The U.S. outlook has declined, and moreover the outlook is even worse in many other parts of the world, which will lead to softer demand for U.S. goods.”3

In 2019, CFOs expect below 3.0% economic growth for the U.S. economy with accompanying capital spending and employment growth of about 3.0%. Similar to PIMCO’s forecast, Duke Fuqua’s Graham said CFOs’ recession projections suggest they believe most of the growth will occur early in the year.

In a downside scenario, those CFOs polled in the survey forecast a one-in-ten chance that annual real (inflation-adjusted) growth will be a “meager” 0.6%. In this worst-case scenario, CFOs would expect capital spending to fall by 1.3% and hiring to remain flat.

Earnings Slowdown?

Consistent with recession predictions, business optimism is also waning. The Optimism Index for the U.S. Economy fell to 66 this quarter, compared to recent highs of 71 in the March and June 2018 quarters. Duke Fuqua says the survey’s CFO Optimism Index has historically been an accurate predictor of future hiring and GDP growth.

Those U.S. CFOs surveyed in December who also head up public companies trimmed their earnings growth forecasts to 4.5% in the next 12 months, compared to 12.8% as of September. Data from FactSet as of December 21 tracking earnings projections for companies in the S&P 500, show the estimated earnings growth rate for full-year 2019 to be 7.9%. That compares to analysts’ forecasts for earnings growth of 20.3% for full-year 2018.4

Looking at a wider universe than the S&P 500, economists at Wells Fargo forecast a “downshift” in before-tax profits to 5% in 2019 from nearly 8% in 2018, based on a measure of profits from the National Income and Products Account, which includes all of the corporations in the U.S. economy. A main difference is that NIPA profits are based on current production, while S&P 500 profits include items such as changes in asset valuations from pension plans, for example.

“While there are technical differences with our economy-wide measure and more market-oriented measures of profits, the slowdown could be troubling to investors as well as a headwind to new investment and hiring in the year ahead,” the Wells Fargo economists write in a special commentary published December 17.5


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1 Amadeo, K. (2018, December 12). Where Are We in the Current Business Cycle? The Balance. Retrieved from:

2 Fels, J. and Balls, A. (2018, December). Cyclical Outlook: Synching Lower. PIMCO. Retrieved from:

3 Duke University’s Fuqua School of Business (2018, December). Recession Considered Lkely By Year-End 2019. Duke University/CFO Global Business Outlook. Retrieved from:

[Further results from the Duke University/CFO Global Business Outlook were retrieved from:]

4 Butters, J. (2018, December 21). FactSet Earnings Insight. FactSet Research Systems Inc. Retrieved from:

5 Bryson, J., House, S. and Seery, S. (2018, December 17). Corporate Profits: A Problem in 2019? Wells Fargo Securities Economics Group. Retrieved from:


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