CFOs Are More Optimistic on Side-Stepping a Recession

By Jennifer Williams-Alvarez and Mark Maurer

Aug. 11, 2023 5:30 am ET The Wall Street Journal

The Federal Reserve is central to the U.S. economy today, but its power has been built over decades. Its decisions can lower inflation or spark a recession. WSJ explains how the Fed was formed and the role it plays. Photo illustration: Annie Zhao

Costs remain a concern, but a strong labor market and moderating inflation have assuaged finance chiefs’ worst economic fears

Finance chiefs at companies from Chipotle Mexican Grill to Yelp have grown more encouraged throughout the year that the U.S. economy will skirt a full-blown downturn. Still, they are mixed on whether it is time to unwind some of their belt-tightening or pursue new avenues of growth.

It remains an uncertain time to run a company’s finance function, said Amol Dhargalkar, chairman and managing partner at Chatham Financial, a financial-risk adviser. “I wouldn’t say it’s ‘Full steam ahead, let’s go, with reckless abandon,’” he said. “But it’s certainly not, ‘We think recession is coming so let’s cut back right away.’ ”

Chipotle Chief Financial Officer Jack Hartung is hopeful on the economy for the next couple of quarters and into 2024.

“All the indicators are that there’s not going to be a recession,” the CFO said. “As long as consumers have jobs, and they have the desire to do what they’re doing right now—to enjoy experiences, those experiences in food, vacations, eating out—I expect that the economy will remain strong.”

Economists, too, are dialing back recession risks as the Federal Reserve’s rate-hike campaign has helped tame inflation without derailing a strong labor market. On Thursday, the Labor Department said the consumer-price index had ticked up to 3.2% in July on an annual basis from 3% in June. But underlying price pressures, so-called core inflation, edged down to an annual 4.7% from 4.8% in June. And last week, the Labor Department reported that the unemployment rate fell to 3.5% in July, near a half-century low.

Even so, Hartung said he is sensitive to keeping costs down. The Newport Beach, Calif.-based company doesn’t tend to make investment decisions—particularly when it comes to devoting capital to new restaurants—based on whether or not a recession might be brewing, he said.

“Those are 20-, 30-year decisions that we’re making,” he said of opening new locations. “During a recession, if the sales are a little softer, the return might be a little softer, but that would be for a year or two. For the remaining 18 to 28 years, we’re going to generate very, very strong returns.” (Visit The Wall Street Journal for the full article.)