“The combination of ambiguity, interruptions, and price fluctuations is affecting some leaders to drastically adjust their objectives and pivot their business models, in an effort to maintain growth and confidence as they approach an extremely difficult phase.”
Navigating Recession Risk in 2022 and Beyond
Although it's evident that the economy is now a leading concern for business executives, they've learned to manage the unpredictable in recent years, realigning their workforces, untangling supply chain disruptions, and reacting to geopolitical and economic consequences. As the risk of a recession emerges, many are already preparing with a strong emphasis on preparedness and adaptability. And some look into possibilities in the midst of the uncertainties caused by the promise of technology, talent, and ESG.
As recession concerns increase, CEOs are keeping an eye out for wording about job layoffs and hiring freezes in new staff and business announcements. Hiring slowdowns and job losses are becoming more frequent in the technology sector and, to a lesser extent, the financial services business. At the moment, we see this as a sector-specific tendency rather than a reflection of the overall economy. Currently, everyone is looking for signs of increased mentions across a larger range of industries, which would indicate increased recession risk.
CEOs Expect a Recession, but they're Prepared
Interestingly, CEOs are optimistic about the next three years, many predict challenges in the immediate term. Nearly 86 percent of CEOs predict a recession will occur within the next 12 months, but three out of five 58 percent consider it will be moderate and brief, and 76 percent have possibility measures in place. Despite short-term economic concerns, CEOs' greater confidence for the long term indicates they are well equipped to lead their organizations through challenging times.
In contrast to 2019 and 2020, CEOs are more prepared to withstand short-term challenges with resilience measures in place, but still project long-term growth.
More Staff Layoffs on the Way: Would this Cause a Recession?
Currently, the major concern for those worried about a recession is that the labor reports may drop in the second half of 2022, removing a critical economic factor that has been propping up the economy and keeping us out of a recession. It will be impossible to disagree that we are not in a recession until the labor data change.
According to the US Bureau of Labor Statistics, the unemployment rate jumped 0.2% to 3.7% in August, with 6.0 million individuals out of work. However, after adding 526,000 jobs in July, companies added 315,000 in August. In addition, payroll looks to be greater than pre-pandemic levels, indicating that employees have more money to spend. Furthermore, consumer spending looks to be expanding if it weren't for rising inflation; nevertheless, we can't overlook the influence of rising inflation on customer spending as people sustain themselves for what now appears to be an inevitable recession.
However, we have yet to witness an increase in mentions anywhere near the highs recorded during prior instances of falling growth, such as the Great Financial Crisis and the commencement of the pandemic, as seen in the following figure.
Source: BlackRock, September 2022.
ESG: Impact of Recession
Globally, CEOs acknowledge the significance of ESG activities in their companies, particularly when questioned about the impact of ESG on enhancing financial performance, generating growth, and satisfying stakeholder expectations. However, as CEOs seek to maintain confidence and take safety measures to protect their firms from the looming recession, signs indicate that ESG development will suffer as a result, following the pattern of CEOs re-evaluating projects in many sectors of the organization (e.g., transformation and staffing).
ESG has evolved into a commercial need. Delaying critical ESG initiatives may cause firms to become more reactive in the future, rather than leading the way with increased transparency, resilience, and sustainability. As economic uncertainty continues, half of respondents are pausing or evaluating their current or planned ESG activities over the next six months, and 34% have already done so.
Conclusion: Ramping up towards Progress
Although a recession may be on the way, and some businesses are preparing for one by cutting back, there is still some good news.
Job listings have increased by 61% compared to pre-pandemic levels. Additionally, as of October 2022, unemployment is still exceptionally low at 3.7%, almost where it was before the pandemic. This figure is generally promising since unemployment rates do not continue to decline or remain stable during a recession.
The majority of businesses are still searching to fill positions, and there are more job announcements than available employees. Despite hiring restrictions or layoffs in particular departments, several of the firms continue to employ. Still, it’s a job seeker’s market.