CFOs worry about effect of tariffs on the economy
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A large share of U.S. companies cut back, postponed or canceled spending in the first half of the year due to trade concerns, per a survey of chief financial officers released this morning.
Why it matters: The long-running survey, from Duke University's Fuqua School of Business, portends slower economic growth and higher prices in the coming year.
- It's particularly striking given that it was conducted from May 19 to June 6, after the White House backed off its triple-digit China tariffs.
By the numbers: 40% of those surveyed said they've postponed or canceled capital spending. Separately, 40% said tariffs and trade policy are a pressing concern, up from zero two years ago.
Zoom out: Overall, 23% of respondents predicted negative year-ahead economic growth, compared to 15% in the previous quarter.
Reality check: Optimism is down but it's not at a "recession level," said John Graham, a finance professor at Duke University who directs the survey.
- Certain types of firms are more immediately affected by tariffs, such as importers or manufacturers, but these companies are still a minority of private sector gross domestic product.
- "Keep in mind that not everybody is directly affected, so not every cost is going to go up in the economy," Graham noted.
Between the lines: This is a change from President Trump's first term when — despite trade policy — optimism basically kept rising until the coronavirus pandemic hit, Graham said.
- But this time, optimism started to decline after the tariffs were rolled out, he said. The major difference is the uncertainty.
- If the president "had come out and said, 'This is what we're doing,' and that had never changed, that would have been less upsetting to the economy," Graham added. People just don't know how to plan.
The bottom line: Tariff uncertainty is bumming out financial executives.
