Big employers think workers have finally lost control of job market

CFO Council Survey: Inflation won't be back to normal any time soon

Union strikes from Detroit to Hollywood have proven the power of workers and turned the tide after decades of a weakened labor movement, but the signs are increasing in the nationwide job market that the post-pandemic era of worker control over wage growth and job opportunities is coming to an end.

All year long, and back into 2022, the challenge of finding qualified workers for open positions has been among the biggest for companies, and wage growth among the most-watched inflationary forces at the Fed and within C-suites. Now 60% of chief financial officers surveyed by CNBC say that it has become easier to find and hire qualified workers for open positions compared to a year ago. That marks a 25-percentage point increase from a quarter ago, when 35% of CFOs held that view, a magnitude of change quarter over quarter that is rare in this quarterly survey series.

There was already a sign in the Q3 CNBC CFO Council survey that a shift was underway in this view of the balance of power between workers and employers from within the C-suite, with 50% of CFOs saying at that time conditions in the labor market were “about the same” — i.e., it was at least no longer getting harder to find and hire skilled labor. But now it’s tipped. And last quarter, there were still 15% of CFOs saying that it remained harder than a year ago to find workers, a view that’s all but gone from the survey group.

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The CNBC CFO Council survey is a quarterly sampling of views from top financial officers at major corporations, which includes responses from 30 CFOs recorded between Nov. 14-Nov. 24.

The CFO data is in line with the mounting headlines this year that the Great Resignation has ended, and the hard data and sentiment indicators from the labor market showing that the Federal Reserve’s interest rate hikes are cooling things down, from job growth to wage growth. The latest nonfarm payroll report showed a resilient economy still adding jobs, but at a pace that was below expectations. Unemployment has ticked up, wage growth continues to decline, and the “quits rate” has leveled off from its pandemic surge. The Glassdoor Employee Confidence Index fell to its lowest level since 2016 this fall.

The CFO view of the labor market also filters through to their broader view of the economy and markets, which has changed in other considerable ways over the four quarters of surveying by CNBC this year. CFOs started 2023 somewhat pessimistic, with the reasons easy to grasp: inflation, the Fed’s aggressive interest rate hikes to control it, and stocks entering a tailspin in 2022’s final quarter.

Almost a year later, the market has rallied on the conviction that inflation has been vanquished and the hikes are finished. Optimism among CFOs is rising, too. It may not match the enthusiasm of stock investors, which pushed up the Nasdaq more than 10% this month, but results from the Q4 CFO Council survey indicate a more positive view of the market and likelihood of a soft landing.

Here are some additional survey highlights:

Fear of inflation is at a low.

No surprise here, given the recent readings from CPI and PPI reports, but the Q4 survey finds a quarterly low for CFOs (7%) citing inflation as the biggest risk to their business.

Inflation wins come at a cost.

Recent earnings reports and commentary from consumer giants, including Walmart, Best Buy and Home Depot, have included warnings about the consumer despite continued spending. The Fed may have the upper hand on inflation, and wage growth may be slowing, but that’s also leading to more concerns about consumer demand, with 33% of CFOs citing it as their biggest external risk, the highest it has reached among risk factors across the four quarterly surveys this year.

Stocks can continue to move higher.

CFOs have tended throughout the history of this survey to ignore the market noise. But the Q4 survey finds bullishness among CFOs at a high for the year. Over 40% of CFOs say it’s 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 the bearish outcome for the Dow is the more likely one. In the Q1 survey, only 13% of CFOs thought the 40,000 mark was on the horizon, and even just a quarter ago, only 25% of CFOs saw the 40,000 milestone as likely. On a comparative basis, the Dow has plenty of room to run. It’s only up 6% this year, versus 19% for the S&P 500 and 37% for the Nasdaq Composite.

This doesn’t mean ‘soft landing’ is now the majority view.

CFOs who expect a soft landing for the economy are now more numerous, with 37% of Q4 respondents holding this view. That’s more than double the CFOs who called a soft landing in Q1, and continues a rise we saw in the Q3 survey, when it hit 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 won’t be back to normal any time soon.

One survey finding that CFOs have been consistent on throughout 2023 is that inflation will not be going back to the Fed’s 2% target any time soon.

CFOs increasingly give the Fed high marks for its inflation battle. Those who describe the Fed’s efforts as “good” are now the majority view, at 53% of respondents, up from 40% in Q1. And CFOs who rate the Fed’s actions as “poor” are down from 17% in the first quarter of the year to 7% now. But the CFO view of when inflation returns to 2% keeps getting pushed farther out into the future.

In Q4, 83% of CFOs say that won’t happen until 2025 or later, up from 75% last quarter. Even as inflation has hit multi-year lows in both consumer and wholesale indexes, expectations for higher inflation have been rising among consumers for the past two months, a troubling sign for the Fed, and it’s clear from CFOs that even if the Fed is winning the battle, it’s a long way to total surrender.

Most CFOs don’t expect rate cuts to start until Sept. 2024

With inflation under control but Fed presidents saying it’s too soon to declare victory, and CFOs expecting a slow march back to the 2% target rate, it’s no surprise that only one-third of CFOs expect rate cuts to begin any sooner than September of next year (right after the Fed’s annual August Jackson Hole Economic Symposium). About 27% peg June or July as the most likely time for cuts to begin, but 30% of CFOs say it will be 2025 before the Fed cuts. Another 14% say November or December of next year. That’s more hawkish than the market, which currently is betting the Fed may start cutting by May.

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