What CEOs Are Saying About the Consumer: 'They're Under Pressure'

Corporate leaders around the world have been weighing in on the economy this week, with some expressing concerns about inflation and the labor market.

As we continue to see the effects of the pandemic play out, it's becoming increasingly clear that customers are accelerating their digital spend and that organizations are exercising caution when it comes to macroeconomic uncertainty. We're also seeing the birth of the next major wave of computing, as AI models are turned into a new computing platform.

"I believe that if the recession is severe, it will lead to lower costs for most businesses. This could result in deflation, which would improve margins. I'm just guessing here, though."

Most of our clients believe that they will emerge stronger from any challenges they face in 2023. They are deploying technology to help offset wage inflation, cyber issues, supply-chain challenges and demographic shifts. This shows that they are committed to coming out of this period of change stronger than ever before.

There are 200 companies looking to list on the Nasdaq, and if the markets improve as the year goes on, we may see some of them succeed. However, it takes more than just willing companies to make this happen - investors need to be confident in underwriting new deals in order for this to happen.

It's remarkable how stable total spending is. What's happening is that as spending on goods slows down, spending on services picks up the slack. Consumers are just shifting their spending, but they're still spending the same amount.

"I sense that consumers are under pressure. I've been talking to our top customers, and I recognize that they are facing some challenges financially."

The slower-than-expected growth was due to rapid declines in consumer-facing markets such as consumer electronics and retail—a dynamic that accelerated in December as consumers sharply cut discretionary spending and retailers adjusted inventory levels. We expect the demand trends that we saw in December to extend through the first half of 2023.

"We expect that the inflationary impact of our policies will carry over into 2022." (Jan. 24)

It is our view that inflation has peaked, but will remain sticky as we move through the year. We believe that an orderly loosening of the labor market will be a key determiner of the country’s ability to return our economy to sustainable conditions in the second half and 2024.

"There are no longer any constraints on hiring. Companies can hire the people they need. It's all about training and getting them ready to do the sophisticated work that we demand." (Jan. 25)

The U.S. labor market is still growing, but the rate of growth is slowing. This is reflected in our client base. Although there have been headlines about job cuts by some companies, we have not seen widespread softening in the labor market.

"While you may have seen headlines about individual companies going through layoffs, it's important to remember that most of these companies are still employing more people than they were before the pandemic. There is simply a need to 'right-size' in light of current circumstances."

We've always expected that the US government and Congress would eventually recognize the reality of the global geopolitical situation and take appropriate action. This was borne out in the budget process for FY 2023, and we expect the same to happen in the next budget cycle. Sadly, the geopolitical situation has not changed and we still expect the same challenges in the future.

"I believe that the closer you are to the threat, the more urgent your funding requirements become. We have always posited that the threat environment drives demand for defense products, and we are seeing some of that now." (Jan. 25)

We expect macroeconomic conditions to remain weak at least through the first half of the year, with the possibility of improvements in the second half. Various factors are impacting our markets, including macroeconomic uncertainty, rising interest rates, geopolitical tensions in Europe, and Covid-19 impacts in Asia, especially in China.

"I think the reaction to our $75 billion buyback has been a bit overblown. We didn't need to size the program so large – we could have just been prepared to do another one sooner. We're not trying to create any reaction with this buyback, we're just trying to show how confident we are in our cash generation."

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