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Washington DC
CNN
—
U.S. companies are starting the year with a cautiously optimistic outlook.
In 2023, the U.S. economy avoided recession and the job market remained strong as inflation steadily declined throughout the year. Americans continued to spend, keeping service providers, retailers, and manufacturers afloat.
The economy’s remarkable resilience last year, which confounded economists and investors, could continue. There is now a good chance that inflation will continue to trend toward the Federal Reserve’s 2% goal without a sharp rise in unemployment, a rare phenomenon known as a “soft landing.” It is a great feat. The Fed also plans to start lowering interest rates this year.
But while companies have much to be grateful for and have reason to be optimistic about, the future is uncertain.
Last week, a survey conducted by the National Federation of Independent Business (NFIB) and The Conference Board detailed the biggest risks businesses are currently concerned about. The U.S. Chamber of Commerce also held its annual “State of American Business” event Thursday.
Here are some of the biggest risks for American businesses in 2024.
First of all, there is always a possibility of a recession in any given year, so the threat of a recession is still lurking.
The Conference Board on Wednesday released a survey of more than 1,200 business owners who cited economic recession as their top concern. Research shows that 37% of US CEOs are preparing for a recession next year.
The economy is certainly battling some headwinds. Even as banks tighten lending standards, Americans continue to draw down pandemic savings and take on more debt.
Some economists and investors still think a recession is expected this year, but others don’t. Economists at Wells Fargo recently said in their latest economic forecast that they no longer believe a recession is imminent.
“In the spirit of John Maynard Keynes, the facts compel us to change our minds,” they wrote in a note Friday. “In short, we expect the U.S. economy to continue expanding over the entire forecast period through the end of 2025.”
Inflation was the second-biggest concern among business executives, according to the Conference Board survey.
Inflation has receded significantly since exploding nearly three years ago, but remains above the Fed’s official target of 2% and above anything Americans were accustomed to before the pandemic. ing.
Chief Economist Dana Peterson said, “Although inflation indicators are showing some slowing, price levels are still much higher than many businesses are accustomed to, and labor shortages in many industries are causing wages to decline.” “Upward pressure remains.” she told CNN in an interview at the conference board.
The NFIB’s December Small Business Survey, released Tuesday, said resurgent inflation is “Main Street’s No. 1 business issue.” The survey also found that companies continue to struggle with rising labor costs and problems finding qualified candidates for job openings.
NFIB Chief Economist Bill Dunkelberg said in a release: “Inflation and labor quality continue to be challenging issues for small business owners, and we are not confident that the situation will improve in 2024.” .
Despite inflation slowing significantly over the past year, U.S. small business sentiment remains subdued, according to NFIB’s monthly survey. The survey’s optimism index was 91.9 in December, “the 24th consecutive month below the 50-year average of 98.”
Another business risk in 2024 is interest rates. The Fed is expected to start lowering rates later this year, but rates won’t return to near zero.
The latest economic outlook released by Fed officials last month predicted that interest rates would remain just below 3% over the long term. That’s lower than the current range of 5.25%-5.5% (a 23-year high), but lower than the near-zero interest rate the Fed cut early in the pandemic to keep the economy’s head above water. It’s far superior.
This could become an issue if businesses that took out business loans in 2020 need to refinance, which could happen as early as this year for many businesses.
“When you have a large number of companies with huge amounts of debt and they have to refinance at significantly higher interest rates, the risk of default increases,” Peterson said.
“It will certainly feed back through the financial markets, the companies that have lent money into the financial markets, and the investors who own the securities as well. “It can be demotivating,” she said.
American companies also appear wary of the risks posed by the ongoing gridlock and polarization in Congress.
“The only risk that companies are saying is getting worse is our country’s “It’s a risk coming from the government.”
“We are locked in a cycle of bipartisanship and fluctuations in political power,” she said.
Last year, political deadlock in Congress nearly caused the United States to default on its debt for the first time in history. That would have triggered a major economic storm. Hardline conservatives are now trying to undermine a bipartisan agreement on spending policy between House Speaker Mike Johnson and Senate Majority Leader Chuck Schumer just days before the government shutdown deadline. It is said that
The belligerent nature of members of Congress was a big reason why risk rating firm Fitch Ratings downgraded U.S. debt from its highest rating of AAA to AA+, citing “a steady decline in governance standards.” Another rating agency, Moody’s Investors Service, changed the country’s debt outlook to negative in November.
Political polarization also makes it extremely difficult to pass major reforms on immigration and health care. Clark, CEO of the U.S. Chamber of Commerce, cited slow government approvals for building permits, backlogs in worker visa applications and high child care costs as examples of the government’s failure to respond during this time. Ta.
“There are big challenges and big opportunities, and they will require leadership from policymakers and partnerships between government and business,” she said.
Some companies started the new year with cost-cutting measures.
Just a few weeks into 2024, some major companies have already announced job cuts, including Google parent Alphabet, BlackRock, Amazon, Duolingo, and Citigroup.
JPMorgan Chase & Co. started its earnings season with a bang on Friday. But that’s because of strange accounting practices, my colleagues Nicole Goodkind and Crystal Herr report.
The bank’s fourth-quarter profit fell 15% from a year earlier to $9.3 billion, well below the expectations of analysts surveyed by FactSet.
Earnings per share came to $3.04, also well below the $3.35 expected by FactSet.
These numbers may suggest that banks are struggling. But that is far from the truth. JPMorgan just posted its highest profit year ever. Revenue in 2023 increased by 23% to $158 billion, and profits also increased by 32% to $49.6 billion.
So what explains this discrepancy?
It’s because of the local bank crisis.
It cost the Federal Deposit Insurance Corp. about $23 billion to clean up the mess left after Silicon Valley Bank and Signature Bank collapsed last spring. The major banks were primarily responsible for footing the bill.
JPMorgan’s profits were depressed by a one-time $2.9 billion charge the bank had to pay in connection with the crisis.
JPMorgan said without the lump sum payment, earnings would have been closer to $3.97 per share, blowing away expectations.
JPMorgan is the largest bank in the United States by assets and is often seen as a bellwether for the rest of Wall Street. And other banks are certainly experiencing similar problems.
Bank of America paid $2.1 billion in FDIC fees over the crisis. The bank reported fourth-quarter earnings of 35 cents per share, below FactSet’s estimate of 53 cents per share. The bank said that without the one-time fee, profit for the quarter would have been about 70 cents per share.
Citigroup paid $1.7 billion in fees to the FDIC. The bank reported a loss in earnings of $1.16 per share in the fourth quarter, missing earnings estimates of 11 cents per share, according to FactSet. Citi said fourth-quarter earnings would have been 84 cents per share without one-time charges.
Citi incurred several additional costs impacting its results, including an $880 million loss in Argentina and $780 million in restructuring charges.
A JPMorgan spokesperson told CNN that FactSet and other analysts’ forecasts did not include that special fee.
Monday: The market was closed in observance of Martin Luther King Jr. Day.
Tuesday: Profits from Morgan Stanley and Goldman Sachs. China’s National Bureau of Statistics has released December statistics on industrial production, retail sales, fixed asset investment, unemployment rate and fourth quarter gross domestic product.
Wednesday: Revenue from Alcoa. The UK’s Office for National Statistics releases inflation data for December. The U.S. Department of Commerce releases December retail sales and November business inventory data. The US Department of Labor reports export and import prices for December. The Federal Reserve releases industrial production statistics for December.
Thursday: The US Department of Commerce has announced the number of housing starts and building permits for December. The U.S. Department of Labor releases new claims for unemployment assistance for the week ending January 13th. Japan releases inflation statistics for December.
Friday: Revenue from PPG. The University of Michigan released its January preliminary consumer survey. The National Association of Realtors reports on existing home sales for December.
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