Americans are understandably grumpy about 2022 amid buffeting by surging inflation, supply-chain disruptions, labor shortages and Covid-19. They might or might not feel relieved to learn that the country’s business leaders are more upbeat than ever.
The Business Roundtable, the lobby of about 200 chief executives of major U.S. companies, said its quarterly Economic Outlook Index reached an all-time high at the end of 2021, based on forecasts for capital spending, employment and sales growth during the next six months. These CEOs’ hiring expectations also are at a record high.
More than 300 companies in the S&P 500 index, in their latest annual reports, say they will hire more people this year than at any point during the past three decades and about 50% more than the second-highest year of 2020, according to data compiled by Bloomberg.
That was before the U.S. and its allies reacted to Russia’s invasion of Ukraine with sanctions that will surely disrupt the global economy. Uncertainty is a given.
Still, five days after the assault began, Target Corp. surprised analysts last Tuesday with a robust fourth-quarter profit and outlook of rising operating income and revenue. The Minneapolis-based chain of general-merchandise discount stores, whose shares rose 13.5% before the market opened that day, the most in three years, even had a sanguine response to fears that inflation would devastate its bottom line.
“We certainly see the inflationary cost pressure,” Target chief financial officer Michael Fiddelke said in an interview with Bloomberg TV. “We have a lot of levers to pull within our business to make sure we’re protecting value for our guests. Price is the lever we pull last.”
Confidence persists even with JPMorgan Chase & Co. CEO Jamie Dimon warning that disconnecting Russian banks from the global SWIFT messaging system may bring “unintended consequences.” Kohl’s Corp. CEO Michelle Gass wasn’t retreating on Tuesday when she said the retailer remains “extremely confident in the future growth and cash-flow generation of our business,” in response to queries about rising prices and Russia’s invasion of Ukraine.
It’s never hard to dig up worried CEOs, and some pundits have done so. Costs are rising and the sanctions aimed at Russia add to the atmosphere of uncertainty.
But for every business executive overwhelmed by the challenges of a turbulent time, there are plenty more exuding the confidence of John Morikis, president and CEO of Cleveland-based Sherwin Williams Co.
“We also continued to invest in multiple long-term growth initiatives during the year, including opening 79 paint stores in the U.S. and Canada and hiring approximately 1,400 management trainees,” Morikis told shareholders on Jan. 27.
Tom Toomey, chairman and CEO of Highlands Ranch, Colorado-based real estate investment trust UDR Inc. told analysts during a Feb. 8 earnings call: “Our full-year 2021 earnings and same-store results compare very well versus initial guidance, and operating strength persisted into 2022. Our outlook for 2022 guidance signals one of our best years ever.”
Johnson Controls International, the Milwaukee-based maker of building products including air systems and fire safety solutions, is “well positioned for accelerated growth as we leverage our OpenBlue Digital platform to capitalize on the global trend towards reducing carbon emissions and energy intensity and improving the overall health of indoor environments,” said CFO Olivier Leonetti.
The evidence that business leaders are putting their money where their mouths are is reflected in the soaring capital expenditures for business investment by the 500 companies in the S&P stock market index: $800 billion during the past 12 months, a record 12% gain in 2021 that will be exceeded this year, according to data compiled by Bloomberg.
That’s an expression of confidence that clashes discordantly with the fear of inflation evidenced by the University of Michigan Consumer Sentiment Index, which fell to its lowest measure since 2011, a year when CEO and consumer confidence fell in tandem. The current divergence is the widest in modern times, according to data compiled by Bloomberg.
But with price increases outstripping wage gains, the contrast between the pessimism of consumers and the optimism of executives is understandable. “Sky-high inflation isn’t bad news for everybody,” said Bloomberg chief economist Tom Orlik. For companies with market power, Orlik explained, “rising prices means rising profits — one factor that explains CEO confidence.”
Yet there are reasons to expect consumer gloom to lift. Retail sales wouldn’t be booming if people couldn’t make ends meet, and most workers are being paid more per hour today than before the pandemic, even after inflation.
The economic recovery from the Covid-19 recession is stronger and faster than from the Great Recession that ended in 2009. U.S. personal income increased 7.5% in 2021, the largest yearly growth since 2000, according to data from Bureau of Economic Analysis compiled by Bloomberg.
Adults in the bottom half of the income distribution had much higher incomes in 2021 than their prior three years; income poverty was lower in 2021 and the share of uninsured low-income people under age 65 dropped in 2021.
That’s why consumer dread is likely to recede as business forecasts become reality.
Tyson Foods Inc., the meat-packing giant based in Springdale, Arkansas has seen its gross margin widen to 14% from 12% during the past three years, enabling the chicken processor to turn $100 of revenue into $14 of profit after the cost of raw materials, labor and other production expenses, according to data compiled by Bloomberg. By this measure, Tyson has become the most profitable since 2000 with the scale of its sales growth exceeding its costs from inflation.
Ravi Saligram, CEO of the Atlanta-based retailer Newell Brands, which includes Rubbermaid, Mr. Coffee and Yankee Candle, told shareholders on Feb. 11, “I am proud of the way our team has navigated through a difficult operating and inflationary backdrop, delivering more than 12% growth in both core sales and normalized operating income.”
Corporate America, by some measures, is the healthiest it’s ever been. Even with record borrowing in recent years, the total debt to asset ratio of the companies in the S&P 500 declined to 23.5%, about the lowest in three decades and well below the average debt to asset ratio since 1990 of 31.2%, according to data compiled by Bloomberg. At the same time, total earnings per share of the S&P 500 jumped to a record-high $191, more than double its $95 at the end of 2020, according to data compiled by Bloomberg.
No wonder Standard & Poor’s upgraded 1,130 corporate bond issuers in the U.S. during the past 12 months and downgraded only 543 of them. The ratio, including 2.3 upgrades in so-called high-yield junk bonds for each downgrade, is the highest in at least 10 years.
Whatever happens in 2022, it’s unlikely CEOs will have too much difficulty getting through it.
(Corrects spelling of Newell Brands in 21st paragraph.)
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Matthew A. Winkler is Co-founder of Bloomberg News (1990) and Editor-in-Chief Emeritus; Bloomberg Opinion Columnist since 2015; Co-founder of Bloomberg Business Journalism Diversity Program in 2017. During his 25 years as Editor-in-Chief, Bloomberg News was a three-time finalist and winner of the Pulitzer Prize for Explanatory Reporting and received numerous George Polk, Gerald Loeb, Overseas Press Club and Society of Professional Journalists and Editors (Sabew) awards.
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