Is A Soft Landing In The Near Future?

Sep 6, 2023 | Economy/Economic

Is a soft landing in the near future? Major companies are split on whether the Federal Reserve will be able to tame inflation without tipping the U.S. economy into a full-blown recession. Below you will learn what top executives are saying about a soft landing.

As reported by Wall Street Journal on August 13th, 2023, by Inti Pacheco.

What Top Executives Are Saying About a Soft Landing

Is a soft landing in sight? Maybe if you sell burgers or bleach. For videogame makers and real-estate firms, that scenario looks out of reach.

Big companies are split on whether the Federal Reserve will be able to tame inflation without tipping the U.S. economy into a full-blown recession.

Restaurant companies are upbeat. They say consumers are feeling better and that if there is a recession, it would be mild. Some advertising, media and technology companies said they have been mired in a recession for months. Real-estate firms are feeling the sting of high rates and low supply as home sales continue to decline.

“I’m in the camp that we’ll have at best a mild recession, maybe no recession at all,” Wendy’s Finance Chief Gunther Plosch said Wednesday during the company’s earnings call. Executives at the restaurant chain said consumers continue to face a lot of pressures but Plosch said he has seen improvement in how much disposable income people have.

“We’ve been in a recession for the better part of 18 months,” Take-Two Interactive Chief Executive Strauss Zelnick said Tuesday. He said the market for entertainment that people consume at home has been challenging for a while and throughout all of 2022, but that conditions were improving for the videogame company.

Talk of a recession has been tempered on recent earnings calls by signs that the Fed is succeeding. A string of interest-rate increases have pushed up borrowing costs to levels that typically lead companies to slash jobs and consumers to sharply curtail spending. While employers have slowed their hiring, many are making a priority of holding on to workers, who in turn are continuing to spend.

U.S. economic growth accelerated in the second quarter and inflation has cooled. Consumer prices ticked up in July, the Labor Department reported on Thursday, but the data showed underlying price pressures remained modest.

Wall Street appears confident that the Fed can pull off a soft landing as stocks have been on a steady climb. Big-banks said that consumers and businesses continue to spend and borrow despite the rate increases.

Cheesecake Factory finance chief Matt Clark said sales for the restaurant chain continue to improve quarter to quarter so he thinks the consumer is in good shape. “The sort of talk and the news has switched in the past month as well away from doomsday to maybe soft landing,” he said in early August.

McDonald’s executives said consumer sentiment was improving but that it still wasn’t at the level it was in 2019. Consumers are trading down and the burger chain is gaining a share of the people who aren’t going to casual-dining venues. Lower-income consumers are still going to the company’s restaurants but they are downsizing their orders, looking for more core and value items, executives said in late July.

Clorox executives are projecting a mild recession in the first half of 2024. “This year coming up is kind of a tale of two halves,” Clorox CEO Linda Rendle said during a call with analysts earlier this month. The executive said the company, which makes Kingsford charcoal and Hidden Valley dressing, will increase prices in the second half of this year to deal with higher production costs and said that things would be tougher for consumers after that.

The Fed’s moves are hitting industries in different ways as consumers become choosier about how they spend their money.

CVS Chief Executive Karen Lynch said the pharmacy chain saw some volatility in June and signs of a potential recession. “We saw a little bit of pullback in consumer behavior,” she said.

There might be talk of the U.S. economy avoiding a recession but the furniture and home-furnishings industry already had one, Overstock.com CEO Jonathan Johnson said in late July. “There’s still some glut of inventory out there. There’s still liquidation going on. I can’t predict how quickly we’re going to get out of this and we get back to normal,” Johnson said.

The apparel industry has been in a similar position for several quarters. Executives at clothing and footwear retailers have been talking about clearing out excess inventories and competing for consumers’ wallets in a competitive marketplace where every company is discounting products to deal with the glut.

Some advertisers and other technology and entertainment companies have said that they have been in a protracted slump.

“I wouldn’t call this a Main Street recession. I wouldn’t even call it a local ad spend recession. I would just call it a sort of general softening,” said Lamar Advertising CEO Sean Reilly. Customers of the billboard and transit-display company have a little more hesitancy to pull the trigger on renewals and new contracts, Reilly said.

Real-estate companies are feeling more of the brunt of the interest-rate increases and are being more cautious with their guidance. Boston Properties Chief Executive Owen Thomas said early this month he hopes the economy remains healthy with a strong labor market. But he has prepared the company for a scenario in which the Fed’s rate increases result in a recession as soon as later this year.

Starwood Property Trust Chief Executive Barry Sternlicht said earlier this month that the real-estate industry was the collateral damage of the Fed’s policies.

Executives at the company chose to be conservative because of what Sternlicht described as a tug of war between a restrictive monetary policy and undisciplined government spending.

“We’re exceedingly cautious because we know what you see on the surface is a lake that’s solid, but there are fissures,” Sternlicht said.