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May 25, 2022

Executives talking about recession nearly as much as in April 2020

Various corporate and individual indicators signal recessionary environment, says Sentieo

As fears of a recession mount, US executives are increasingly addressing the topic on their conference calls with investors and analysts.

The number of mentions of the word ‘recession’ on earnings transcripts has risen sharply and is close to levels last seen in April 2020, at the height of panic over the Covid-19 outbreak, according to data from Sentieo, a market intelligence firm.

Corey Barry, CEO of Best Buy, added to the trend yesterday when discussing the retailer’s first-quarter results. While consumers have strong balance sheets and continue to spend, they are also facing issues like ‘higher gas and food prices, rising interest in mortgage rates, recession fears, stock market volatility and geopolitical uncertainty,’ he said.

In addition, analysts are using the Q&A section of calls to quiz executives about the prospect of recession. ‘Do you think that makes home improvement spending more recession-resistant than it’s been in the past?’ asked Steven Zaccone, an analyst at Citi, on Home Depot’s earnings call last week.

‘Well, we really just have to look at the health of our customer today, which is strong,’ responded the company’s CFO Richard McPhail. ‘Homeowner intent to do projects of small, medium and large sizes has never been higher than right now.’

Gloomy outlook

The world is bracing itself for an economic downturn as policymakers aggressively raise interest rates to control inflation, even in the face of slowing growth. Investors grew more cautious this week following weak US data on business activity and the housing market.

Adding to the gloom is a series of downbeat corporate announcements. Stocks fell sharply on Tuesday, driven in part by a filing from Snap that said it would likely miss its profit and revenue targets, set just one month ago.

A string of market analysts have sounded warnings over the possibility of recession. Last week, Bank of America economists said they foresee a one-in-three chance of a US recession in 2023, though the risks are lower this year.

Nick Mazing, director of research at Sentieo, says datasets looking at both corporate and individual activity are ‘concerning’. He notes that inventory levels at retailers are high, which could indicate that consumers are worried, while Google searches for the word ‘recession’ have spiked, just as they did in the early stages of the Covid-19 outbreak.

With fears of recession playing on investors’ minds, Mazing suggests companies take a leaf from the Covid-19 playbook, where they were ‘much more forthcoming with information and the direct steps they were taking’.

He adds that some companies may be able to position themselves as beneficiaries of trends playing out in the market: ‘[Rising] rates may be bad for housing and mortgage origination but, if we look at financial institutions, if the assets are getting repriced at a faster rate than the liabilities are, they are actually in a good position.’