Finance Chiefs Are Optimistic Any Recession Will Be Short, but Challenges Remain

 

Finance chiefs, policy makers and advisers discussed a range of issues at WSJ’s CFO Network Summit

Finance chiefs are coming into the year grappling with a variety of challenges, from rising interest rates and inflation to managing labor disruptions, pricing and inventory. Yet many have cautiously optimistic outlooks.

While pockets of the economy are weak and highly indebted companies may face financing difficulties and default risks in the current environment, panelists at The Wall Street Journal’s CFO Network Summit on Wednesday said companies in healthy sectors should be able to slog through any headwinds.

“All our clients…have been preparing for a downturn in the economy,” said Carmine Di Sibio, global chairman at Big Four accounting firm Ernst & Young. “But…there’s more and more of a belief that any kind of downturn will be short and shallow, frankly. That seems to be taking over you know what was five or six months ago a very, very negative outlook.”

Chief financial officers, attorneys, rule makers and other leaders spoke of these and additional issues at the Journal’s biannual summit. Here are some of the highlights from the conference, held in person in New York for the first time since the pandemic began three years ago.

With executives largely optimistic any downturn will be brief, Federal Reserve Bank of New York President John Williams opened the day’s discourse by saying the economy will need higher borrowing costs for a few years to bring down inflation and prevent price pressures from strengthening.

The Fed is continuing to raise interest rates this year—though at a milder pace than the most rapid series of increases seen in decades last year—nudging them up by a quarter-percentage point this month to a range between 4.5% and 4.75%.

“We need a sufficiently restrictive stance” on rates, Mr. Williams said, adding that “we’re going to need to maintain that for a few years to make sure we get inflation to 2%.”

Fed officials generally expect rates to reach between 5% and 5.5% this year.

Some finance chiefs, meanwhile, are finding opportunities to expand in the volatile economy. Academy Sports & Outdoors Inc. CFO Michael Mullican told analysts in December his company planned to open between 80 to 100 new stores through the end of 2026.

The CFO said Wednesday he is hoping landlords will offer better terms as some retailers shutter locations. “[We] haven’t seen that yet, and, you know, that’ll change,” he said. “There are a couple of large retailers who may have some availability, which will certainly help us.”

What’s more, costs associated with expansion, such as expenses for materials including steel, and construction backlogs, are stabilizing, Mr. Mullican said. At the same time, inventory challenges are improving, he said, with the retailer having more of a say in the goods it sells.

“The dynamic has changed quite a bit. Last year, if we got it, we took it and we sold it,” he said. “Now you can push back on some of the inventory. You can’t take everything that your vendors are sending you.”

Labor woes persist
Hiring, however, remains a challenge for finance chiefs. U.S. job growth accelerated at the start of the year, with employers adding 517,000 jobs in January and pushing the unemployment rate to 3.4%, a more than five-decade low.

“The number one selling album, according to Billboard, when the unemployment rate was 3.4% last time was the Beatles ‘White Album,’” said the New York Fed’s Mr. Williams. “We’re talking about over 50 years.”

Against that backdrop, Academy is looking to be competitive with hourly rates for workers in its stores and provide opportunities for growth in corporate roles, said Mr. Mullican. The Katy, Texas-based retailer is also seeing benefits from recent layoffs that have roiled companies, particularly those in the technology sector such as Microsoft Corp. and Google parent Alphabet Inc.

“We’ve had a challenge getting people to Houston,” he said, referring to Katy’s neighboring city. “They want to be in Austin or West Coast or, frankly, you know, somewhere around [New York City]. We’ve had some good success at that rate lately with all the layoffs.”

Still, hiring overall remains a struggle, and “I don’t think it’s getting easier,” Mr. Mullican said.

“People think, ‘Oh, there’s layoffs here and layoffs there.’ It’s still hard to attract tech talent,” EY’s Mr. Di Sibio said. “The labor market, I mean, it’s unreal,” he added, noting that “labor market tightness, I think, will continue.”

 

Credit : https://www.wsj.com

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