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Union strikes from Detroit to Hollywood have demonstrated the power of workers and turned the tide after decades of a weakened labor movement, but signs are mounting in the nationwide labor market that the post-pandemic era of worker control over wage growth and job opportunities is coming to an end .
Throughout the year and into 2022, the challenge of finding qualified workers to fill job openings has been one of the greatest for companies, and wage growth has been among the most closely watched inflationary forces at the Fed and in boardrooms. Meanwhile, 60% of CFOs surveyed by CNBC say it has become easier to find and hire qualified workers for open positions compared to last year. That represents a 25 percentage point increase from the previous quarter, when 35% of CFOs held this view, a level of change from quarter to quarter that is rare in this quarterly survey series.
There were already signs in the CNBC CFO Council Q3 survey that this view of the balance of power between employees and employers in the C-suite was changing. 50% of CFOs said that labor market conditions were “about the same” at this point – meaning it was at least no longer becoming more difficult to find and hire qualified workers. But now it’s overturned. And as of last quarter, 15% of CFOs still said it was still harder to find workers than it was a year ago.
The CFO data is in line with increasing headlines this year about the end of the Great Retreat, as well as hard data and labor market sentiment indicators that show the Federal Reserve’s rate hikes are cooling things down, from job growth to wage growth. The latest nonfarm payrolls report showed that a robust economy is still creating new jobs, but at a pace that is below expectations. Unemployment has increased, wage growth continues to decline, and the “quit rate” has leveled off after the pandemic surge. The Glassdoor Employee Confidence Index fell to its lowest level since 2016 in the fall.
The CNBC CFO Council survey is a sample of opinions from top financial executives at large companies that included responses from 30 CFOs collected between November 14 and November 21, 2019. 24.
CFOs’ view of the labor market is also reflected in their broader view of the economy and markets, which changed significantly in other respects over the four quarters of this year’s CNBC survey. CFOs entered 2023 somewhat pessimistically, although the reasons are easy to understand: inflation, the Fed’s aggressive rate hikes to bring them under control, and stocks tumbling in the final quarter of 2022.
Almost a year later, the market rallied on the belief that inflation had been overcome and interest rate hikes were complete. Optimism among CFOs is also increasing. It may not match the enthusiasm of stock investors that pushed the Nasdaq up more than 10% this month, but results from the CFO Council’s Q4 survey suggest a more positive view of the market and the likelihood of a soft landing .
Here are some other survey highlights:
Inflation fears are at an all-time low.
This is no surprise given recent readings from CPI and PPI reports, but the Q4 survey found a quarterly low for CFOs (7%) with inflation as the biggest risk to their business.
Inflation gains come at a price.
Recent earnings reports and commentary from consumer giants like Walmart, Best Buy and Home Depot cautioned consumers despite continued spending. While the Fed has the upper hand on inflation and wage growth may be slowing, that also raises concerns about consumer demand: 33% of CFOs cite it as their top external risk, the highest of any risk factor has the four quarterly surveys this year.
Stocks can continue to rise.
CFOs have tended to ignore market noise throughout the history of this survey. But the Q4 survey shows that optimism among CFOs has reached its highest level this year. Over 40% of CFOs believe it is more likely that the Dow Jones Industrial Average will reach 40,000 than fall back below 30,000. And only about one in four (27%) think a bearish outcome for the Dow is more likely. In the Q1 survey, only 13% of CFOs believed the 40,000 mark was in sight, and just a quarter ago only 25% of CFOs thought the 40,000 mark was likely. In comparison, the Dow has a lot of room to run. It’s up just 6% this year, compared to 19% for the S&P 500 and 37% for the Nasdaq Composite.
This does not mean that “soft landing” is now the majority opinion.
There are now more CFOs expecting a soft landing for the economy, with 37% of respondents expressing this view in the fourth quarter. That’s more than double the CFOs who predicted a soft landing in the first quarter, and continues the increase we saw in the third quarter survey, when it reached 30%. But recession is still the more common view. Half of CFOs expect a recession next year – 20% in the first half of 2024 and 30% in the second half.
Inflation will not return to normal anytime soon.
A survey found that throughout 2023, CFOs consistently maintained that inflation will not return to the Fed’s 2 percent target any time soon.
CFOs are increasingly giving the Fed high marks for its fight against inflation. Those calling the Fed’s efforts “good” are now the majority opinion, at 53% of respondents, up from 40% in the first quarter. And the share of CFOs who rate the Fed’s actions as “bad” has fallen from 17% in the first quarter of the year to 7% now. But the CFO’s view of when inflation will fall back to 2% is being pushed further and further into the future.
In the fourth quarter, 83% of CFOs said this will not happen until 2025 or later, compared to 75% last quarter. Even as inflation has reached multi-year lows in both consumer and wholesale indexes, expectations of higher inflation have risen among consumers over the past two months, a worrying sign for the Fed and from the perspective of CFOs It is clear that even if the Fed wins, it will win. The battle is a long road to complete capitulation.
Most CFOs expect rate cuts to not begin until September 2024
With inflation under control but Fed presidents saying it is too early to declare victory and CFOs expecting a slow march back to the 2% target rate, it is no surprise that only a third of CFOs expect that rate cuts will begin earlier than September next year (immediately after the Fed’s annual Jackson Hole Economic Symposium in August). About 27% think June or July is the most likely time for rate cuts to begin, but 30% of CFOs say it will take until 2025 for the Fed to cut rates. Another 14% say November or December next year. That’s more restrictive than the market, which is currently betting that the Fed could start cutting interest rates in May.
