June 30, 2023 – The Conference Board forecasts that weaknesses emerging in some parts of the economy will intensify and grow more diffuse over the coming months, leading to a recession. This outlook is associated with numerous factors, including, persistent inflation, Federal Reserve hawkishness, dampened bank lending amid the banking crisis, reduced government spending due to the debt ceiling deal, and underlying trends in consumer spending and income, and business investment.
“Labor market tightness will moderate somewhat over the coming quarters but will remain elevated relative to previous economic downturns, reflecting persistent labor shortages in some industries,” The Conference Board report said. “This should prevent overall economic growth from slipping too deeply into contractionary territory and facilitate a rebound next year.”
Looking to 2024, The Conference Board expects the volatility that dominated the U.S. economy over the pandemic period to diminish. “In the second half of 2024 we forecast that overall growth will return to more stable pre-pandemic rates, inflation will drift closer to two percent, and the Fed will bring rates back below four percent,” the report said. “However, due to an aging labor force we expect tightness in the labor market to remain an ongoing challenge for the foreseeable future.”
Separately, EY’s latest quarterly CEO survey found U.S. CEOs operating with certainty while leaning into the mystery. With an all-but-unanimous 99 percent expecting an economic downturn, and roughly half saying the recession will be mild domestically, CEOs were factoring this gathering storm into their strategic models and keeping their options open.
What Top Search Consultants Think
“There has been lots of uncertainly since the beginning of the year leading to major value opportunities for the right and patient investors,” said Debbie Gollin, managing partner and head of asset management at The Bachrach Group’s sister company, Jackson Lucas. “Recession thoughts seem to vacillate daily, yielding a lot of questions about where to invest money but conflicting with the unemployment rates seeming to hold strong. Rare going up, but unemployment is doing very well, so trusting that the feds are helping manage this unknown, I think they’re driving the sentiment. It feels at times like a recession is the only answer, but then a day goes by, and it looks like things have turned around with better insights, leading me to think we’ll avoid it. This seems to be ever-changing.
“Challenges in recruiting have been some of the remote verses in office conversations,” Ms. Gollin said. “Some junior candidates are starting to appreciate that they’re missing out by not being in the office, while others demand no more than two days in an office. Fundraising has been a huge challenge, especially so late in the year, and the shift to private equity firms for middle market loans is a very interesting dynamic. Quantitative professionals are, as usual, very hot in the market, and it is hard to find people who haven’t already spoken to every other systematic or prop shop, so getting them to commit is more challenging than usual.”
Ms. Gollin also notes that credit talent and value/opportunistic investment style is hotter than ever, with strategic senior appointments and heavy focus on junior talent to build. “We are seeing a lot of opportunities for HR people as well at senior levels across recruiting (campus and lateral), HRBPs and specialists in comp, data analytics, benefits, etc.,” she said. “Some other challenges are around compensation structures and getting better success and interest when investment candidates can also get part of the performance, be it equity, RSUs, buy in to a fund, etc. Firms should be advised to use that as an additional selling point to mid-senior level talent to set apart from the bank salaries, for example.”
“Lastly, as co-head of our diversity effort at my firm, diversity is and will always remain challenging in working with firms who want to help their statistics but don’t necessarily want to step up to do it,” said Ms. Gollin. “Others are great and really appreciate the value other than ticking a box, and the need to be better at it is resonating across the street.”
“The current state of the U.S. economy has displayed remarkable resilience in the face of supply chain disruptions and inflationary pressures stemming from the pandemic,” said Gary Erickson, managing partner of Executive Search Partners. “Thankfully, both of these challenges have shown signs of improvement, significantly alleviating the downward pressures on the economy. There are positive indications that CFOs of our customers are becoming more inclined to spend, indicating a loosening of purse strings. This change in sentiment is expected to lead to a substantial increase in the number of approved open positions, with this upward trend projected to begin in September. These developments paint an optimistic picture for the economy, suggesting that it is poised for growth and recovery.”
“The U.S. economy has proven to be surprisingly resilient despite supply chain and inflation problems caused by the pandemic,” said Mr. Erickson. “Fortunately both problems have lessen (significantly) which has reduced the downward pressures on the economy. We do not think that a recession is likely.”
“The search business is inherently subject to cyclical fluctuations influenced by both economic conditions and seasonal factors,” said Mr. Erickson. “In the initial months of the year, our search business experienced a slowdown as companies postponed new and replacement hiring initiatives. As is customary, the summer period tends to be a sluggish period for business activities. However, we anticipate a notable surge in search demand come September. This expectation stems from the diminishing concerns of an impending recession and the urgent need for companies to address the backlog of delayed positions that require filling.”
“I think the macro economy is remarkably resilient,” said John Arbolino, managing director of Boothroyd & Co. “While certain sectors are still recovering from COVID-related disruptions, I am seeing a strong and persistent rebound in demand across a wide variety of industries.”
“If there is a recession, I think it will be mild,” Mr. Arbolino said. “With inflation beginning to moderate, I think there will be less pressure on the Federal Reserve to tighten monetary policy. This, in addition to a very strong labor market, should mitigate any recessionary pressures.”
“While I expect the U.S. economy to remain durable, I continue to see the ongoing impact of technological disruption across many sectors,” said Mr. Arbolino. “Whether it’s retailing, banking, television, radio, or manufacturing, huge sections of the economy are being forced to re-think their prospects and strategies in the face of unrelenting technological change. The much talked about advances in artificial intelligence will only accelerate these pressures.”
“There is an early recession underway for knowledge workers,” said Adam Zoia, chairman and founder of Glocap. “Overall there is still growth and low unemployment but it’s not consistent across all types of jobs. Given the consistent and aggressive Fed actions and the fairly blunt nature of using interest rates to combat inflation a recession would normally be expected and historically has always happened after such material interest rate increases. However, what happened before with COVID, the effect on the supply chain, and the massive stimulus puts us into uncharted territory. The stock market levels suggest that the market believes we will avoid a recession which would be a new outcome after such a degree of interest rate dampening.”
“Within investment management where Glocap focuses, the interest rate increases and the strong economy have misaligned pricing between funds versus sellers so private equity deal activity has fallen sharply which has suppressed hiring needs,” Mr. Zoia said. “On the venture side which doesn’t typically use leverage the suppressed IPO market and concern over pricing levels has materially dampened deal activity and hence hiring needs. Activity and hiring within hedge funds has remained consistent. In addition, non-investment professional hiring has fallen less than investment professional hiring with areas such as fund marketing actually increasing.”
“Candidates became accustomed to have many options and a robust hiring market the last couple of years,” Mr. Zoia said. “As that has changed and become more of a buyer’s market it took a while for candidates to become more open minded to new roles and more normal pricing. Employers given the weaker overall investment market have at the same time become less eager to fill their open roles quickly so together these two forces have slowed down hiring.”
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media