Duke - The Fuqua School of Business

News Release

CFO Survey: 31 Percent Chance of U.S. Recession; Significant Workforce Reductions at $15 Minimum Wage

March 09, 2016


DURHAM, N.C. — There is about a one-third chance of many major economies being in recession at year-end 2016, including the U.S., Mexico, France, Nigeria, Japan and China, a new survey of chief financial officers finds. More than half of Brazilian, South African, Greek, Russian and Portuguese financial executives polled believe their economies will enter or remain in recession by year-end.

The latest Duke University/CFO Global Business Outlook also investigated the minimum wage, with nearly 75 percent of minimum-wage paying U.S. firms saying they would reduce current or future employment if the minimum wage is raised to $15 per hour.

The survey, which ended March 4, has been conducted each quarter for the last 20 years. The survey spans the globe, making it the world's longest-running and most comprehensive research on senior finance executives. Results are for U.S. firms unless otherwise noted.


U.S. CFOs, on average, believe there is a 31 percent chance that the U.S. economy will be in recession by year-end 2016, double the 16 percent chance predicted just nine months ago. The executives say the biggest risk factors to cause recession are the slowdown in China (59 percent of CFOs assign China as a significant risk), political turmoil in the U.S. (53 percent), a stock market decline (50 percent) and the price of oil (40 percent).

"The recession outlook has worsened significantly in the last nine months," said John Graham, a finance professor at Duke's Fuqua School of Business and director of the survey. "Last June, the odds of recession were low in many countries, including the U.S., Canada and much of Europe. Today, driven in large part by slowing emerging economies and volatile financial markets and commodity prices, the risk is relatively high around the world."

Minimum Wage

Among firms whose wage structures would be affected, about 20 percent say they would lay off current workers if the minimum wage is increased to $10 and 44 percent would slow future hiring. At a $15 wage, 41 percent would lay off current employees while 66 percent would slow future hiring. An increase to $8.75 would affect fewer firms, but among those, 11 percent say they would lay off current employees, and 36 percent say it would slow future hiring.

  • In addition to the 20 percent of affected firms who would reduce employee benefits at a $10 wage, 43 percent say they would raise their prices. Sixty-six percent of affected firms would reduce employee benefits at a $15 wage, and 49 percent would raise prices.
  • Respondents generally indicate they could reasonably accommodate a modest hike in minimum wage to $8.75, but even then an ongoing shift away from labor and towards machinery will accelerate.
  • While an increase in minimum wage would benefit employees who retain their jobs, it would also help companies in some ways. Approximately half of affected firms think employee turnover would fall and they would attract higher-quality talent, and 39 percent say productivity would increase, if the minimum wage were increased to $15.

"The CFO respondents show the math is not as simple as 'increased minimum wages = immediate layoffs,'" said Fuqua professor Campbell R. Harvey, a founding director of the survey. "It is more nuanced. CFOs reveal that increased minimum wages will lead to reduced hiring in the future and reduced benefits for current and future employees. While you might not see an immediate impact, corporations will find ways in the future to compensate for increased costs imposed by new regulations."

"Second, raising the minimum wage gives robots a competitive advantage," Harvey said. "Low-skilled jobs are most at risk of being eliminated by labor-saving technologies, with most companies with employees earning less than $10 per hour investing in labor-saving techniques. CFOs are telling policy makers there is a significant unintended consequence: Some jobs will be replaced by robots and this replacement is permanent."

Employment, Wages, Business Spending and Interest Rates

Most U.S. companies indicate that interest rates would have to increase by more than 1 percentage point before they would reduce hiring, spending or borrowing. Sixty percent of firms expect to increase employment in 2016, with the increase averaging 2 percent. Employment growth will be strongest in services/consulting, tech, retail/wholesale and construction. Energy firms will reduce workforce by 9 percent and manufacturing employment will shrink 1 percent. U.S. firms expect to hike wages 3.2 percent in 2016.

CFOs list the difficulty in attracting and retaining qualified employees as one of their top three overall business concerns.

Capital spending is expected to increase just 2 percent over the next year, down from 2.5 percent last quarter and the 5 percent growth predicted in June.

Tech spending should increase 4.3 percent over the next year.

Global Economic Outlook

Optimism from U.S. CFOs about the American economy fell slightly this quarter. On a scale from zero to 100, financial executives rate the outlook at 59, down from 60 last quarter and below the long-run average. Top concerns in the U.S. include economic uncertainty, the cost of benefits, difficulty finding qualified employees and regulatory requirements. Health care costs are expected to rise by more than 7 percent in 2016.

Canadian optimism fell to 56 this quarter, down from 59 in December. Canadian CFOs assign a 42 percent chance of recession by year-end 2016. Employment will remain flat and business spending will increase 1 percent at the median firm this year.

Asian optimism averaged about 57 out of 100 this quarter, ranging from 45 in Japan to 56 in China to 69 in India. Chinese and Japanese CFOs believe there is a 33 percent chance of recession in their home countries by year-end, compared to only 10 percent in India and less than 20 percent elsewhere in Asia. Capital spending is expected to increase by 2 percent in Japan, 4 percent in China and about 7 percent averaged across the rest of Asia.

Wages will be stagnant in Japan, but about a 5 percent hike averaged across the rest of Asia. Full-time employment will be flat in Japan, increase 2 percent in China and by about 5 percent in India. Top concerns include economic uncertainty, currency risk, weak demand and governmental policies. Chinese CFOs also worry about productivity.

Optimism in Europe declined to 53 this quarter from 58 last quarter. Wages should increase by just 1 percent and no full-time employment growth is expected. European top concerns include economic uncertainty, government policies, difficulty attracting the right employees and currency risk. European CFOs assign a 30 percent chance of recession by year-end 2016, with chief causes being slowdowns in Europe and China, as well as political risks and budget deficits. The probability of recession is greater than 50 percent in Portugal, Greece and Russia. One-in-nine European firms are exploiting big data in running their firm and another 30 percent plan to soon adopt the technology. Many fewer firms plan to implement bitcoin, Blockchain or other recent technological advances.

African optimism remains low (46 out of 100, down from 49 last quarter) and is only 38 in South Africa. Sixty percent of South African CFOs expect a recession by year-end, in contrast to 35 percent in Nigeria. Employment is expected to fall by nearly 2 percent in 2016. Capital spending will rise by 2.4 percent on average, with nearly a 10 percent increase in Nigeria, offsetting a 2.3 percent reduction in South Africa. African CFOs are worried about currency risk, economic uncertainty, government policies and limited access to capital.

Latin American economic optimism remains low (45 on a 100 point scale), though it is a region of contrasts. Optimism in Brazil and Chile is extremely low (about 37), but strong in Mexico (70) and Peru (63). Three-fourths of CFOs in Brazil and Ecuador expect their countries to be in recession at year-end. That's compared to 34 percent in Chile, 30 percent in Mexico and 19 percent in Peru. Averaged across Latin America, capital spending in expected to rise 3.7 percent in 2016, with a positive outlook in all responding countries. Full-time employment will fall by 5 percent in Brazil and Ecuador and fall by 2 percent in Chile, while increasing by a median 3 percent in Mexico.