America’s Top CEOs are Not Optimistic About Recovery

By John Banks

Who thinks the business impact from coronavirus will disappear quickly? Not America’s top CEOs.

They see pandemic-related challenges lasting until the end of 2021 — and perhaps even longer.

The Business Roundtable, founded in 1972, is an association based in Washington, D.C., that only has CEOs as members.

Unlike the U.S. Chamber of Commerce, where membership exists at the business level, only a company’s top executive can join the Business Roundtable (BRT). 

The BRT released its latest quarterly report this week, with input from the CEOs of Fortune 100 companies like Apple, General Motors, Johnson and Johnson, and others.

A new survey of BRT members, CNBC reports, “showed that a majority expect most business conditions to recover by the end of 2021.”

“But significant doubt remains,” CNBC goes on to add, as “27% expect the recovery to stretch beyond next year.”

It feels reasonable to assume that, in regard to corporate business conditions, Fortune 100 CEOs are the most informed group in the country. (Small business differs, but Wall Street has no skin in that game.)

And it is no surprise to find out that, on balance, the view from the corner office is bleak.

When a majority of CEOs surveyed see a full recovery 18 months away, and another 27% see it taking even longer, you know the U.S. economy — and the earnings outlook — could be in for a rough ride.

As we’ve noted before in these pages, investors are accustomed to the relatively quick bounce back associated with a financial crisis. You bail out the banks, you spread out some stimulus, and everything is soon enough “normal” again.

But a pandemic is a different beast.

For one thing, there is the simple reality that the pandemic isn’t over. Even countries that had a swift and effective response to COVID-19, like South Korea, are still wrestling with new outbreak challenges. And the United States, meanwhile, is seeing its new case rate surge to all-time highs.

Then, too, there is a kind of ongoing real-economy crisis, with small and medium-sized businesses dealing with virus impacts that are still ongoing. The possibility of rolling shutdowns, in which regions of the country are allowed to open for a time, and then shut down again, sounds economically catastrophic.

And yet, overwhelmed hospital systems pushing beyond 100% capacity, with Americans dying from random ailments for lack of medical treatment, sounds not just catastrophic, but apocalyptic — a significantly worse outcome.

That is why shutdown prospects are still on the table (and why governors in states like Florida and Texas are rolling back business conditions now). 

In addition to the above, there is the factor of consumer behavior change, which is wholly separate from questions of reopening.

If a majority of the population stays worried about COVID-19, or fearful of catching it, a great many small and medium-sized businesses may lack the revenues to break even, let alone profit.

And last but not least, there are the ongoing structural costs of COVID-proofing supply chains, workplaces, and customer-facing interactions.

In some instances the puzzle feels almost impossible. How is a restaurant with 7% profit margins supposed to operate at 50% capacity? How do you COVID-proof a nightclub or a factory where workers stand shoulder-to-shoulder? And how much will all of the upgrades cost?

COVID-19 is still a mystery in many respects. As we find out more about the disease, doctors and researchers are realizing the recovery period, in more than a few instances, can take years, with a non-trivial possibility of permanent damage.

A similar diagnosis applies to the economy, it would seem, for all the reasons just mentioned. A rolling pandemic is not something to be shaken off like a bad cold.

At the same time, it appears the fiscal and monetary authorities will keep pumping and stimulating.

Political fights in Washington mean a probable hiatus before the next round of stimulus comes — but if things get bad enough, Congress is likely to write more checks. Bailouts are like Lay’s Potato Chips: It’s hard to do just one.

If that extra cash fails to actually help small and medium-sized businesses, however — or simply pools in the pockets of those who don’t need it, while failing to close the gap for those who are struggling — we could very easily see an ongoing series of weird, distortionary effects on prices and asset markets, even as the real economy stays weak.

It isn’t a pretty picture, especially if stagflation — or some form of “inflationary depression” — is what we wind up with, as a result of stimulus flows misapplied and real-economy problems unsolved.

But even if that happens, there will be places to invest and ways to protect and grow one’s nest egg — just as there were in the 1930s.