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A recession in 2020? Signs point to yes, majority of surveyed CFOs say

<p>John Graham, the author of the CFO survey.</p>

John Graham, the author of the CFO survey.

If a recent survey of business executives is any indication, the American economy is in trouble.

Almost 50% of the chief financial officers think the American economy is bound for a recession within a year, according to the Duke University/CFO Global Business Outlook. The percentage shoots to nearly 70% who foresee an economic downturn by the end of 2020.

Fears of a looming recession have featured prominently in the news lately, with the Dow dropping hundreds of points a week ago as Wall Street investors feared an inverted yield curve.   

Led by the Fuqua School of Business and John Graham, the D. Richard Mead Jr. family professor of finance, the survey has conducted polling each quarter since July 1996. Graham’s team seeks to gauge the business perspective on the state of the market. The sampled population includes public and private CFOs as well as “CFO” magazine subscribers. 

That these answers foretell a potential recession do not surprise Graham, as he sees myriad causes for the development. 

“Recessions can happen for good reasons, such as when [America] is shifting to a more technological approach. Argentina, China, and Germany are all slowing down, which feeds back into the United States,” Graham said. “Finally, President [Donald] Trump creates a lot of uncertainty, and [that] thwarts growth and inhibits companies from doing innovative things.”

Graham emphasized that the 70% figure is not an overall probability. Recessions are cyclical in any economy, and the United States—with record-high employment rates and general optimism in the economy—is due. Indeed, Graham explained that the strength of the housing market, combined with lower interest rates from the Federal Reserve, makes consumers “more willing to spend.”

The effects of a recession at Duke would be understated but no less pronounced. Graham pointed out that, as a nonprofit institution, Duke is “immune” to the mass firings that characterized automobile factories during the Great Recession in 2008, yet he also underscored that wages will remain stagnant.

A look back at Duke’s 2009 fiscal year report demonstrates that the University engaged in unusual measures to preserve the endowment. Much like a retirement account, Duke invests across the stock market with endowment money, so any significant decline presents a dilemma. 

In the report, Executive Vice President Tallman Trask explained how the University sought to mitigate the recession’s effects.

“The institution was well positioned financially after a 15-year period of unparalleled growth,” he wrote in the report. “We have greatly curtailed hiring and offered early retirement incentives for certain employees. Future construction activity will not commence until the related sources of funding have been secured.” 

If nothing else, Graham expects that a recession will drastically increase enrollment in graduate programs. When students cannot find work, he surmised, they will return to school to increase future prospects.

“It’s not that we want a recession, but it will be interesting to see how admissions are affected,” he said.