Businesses are stocking up for an expected downturn – By Dion Rabouin (Axios) / Nov 8 2019
U.S. companies are holding off on major purchases and investments, paying down debt and stacking up cash as they look to position for an expected economic downturn in 2020.
Why it matters: Firms are trying to protect themselves from a recession, but their spending pullback could weaken the overall economy — and potentially help precipitate the very conditions they fear.
- Business investment has fallen for six months straight and declined by 3% in the third quarter, the largest drop since 2015.
- The retrenchment by businesses helped turn Wednesday’s U.S. workforce productivity report — a key economic metric that compares goods-and-services output to the number of labor hours worked — negative for the first time in four years.
What’s happening: A slew of traditional recession indicators have shown up: The yield curve has inverted, the manufacturing and housing sectors have weakened, and income inequality has spiked to the highest level on record.
- But in contrast to previous economic cycles when businesses spent recklessly, expecting the good times to last forever, today nearly two-thirds of top executives and business owners say they expect a recession within the next 18 months.
- And they’re taking action.
Illustration: Eniola Odetunde/Axios