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June 24, 2019

"The Boy Who Cried Wolf"

Boy Who Cried Wolf

For the last five years, we have seen hiccups in the economy with individuals and institutions, including the Federal Reserve, predicting a recession only to have subsequent facts and data result in a reversal of this position and continuation of the "longest expansion in modern history." The most recent Federal Reserve meeting showed continued concerns and chatter, reminding me of Aesop's "The Boy Who Cried Wolf"... but is the "boy" right?

While the M&A industry is extremely busy with multiples at an all-time high, we continue to scrutinize qualitative and quantitative data noting the following negative trends:

  • PitchBook reported deal count is down 18% year-over-year in Q1
  • May Jobs Report (released June 7) showed:
    • 75,000 net jobs added, against a predicted 187,000 (compared to an average of 223,000 per month in 2018)
    • Downward revisions to March and April net job figures of 36,000 (18% down) and 24,000 (15% down) from respective original estimates
  • Given ten years into an expansion, a staggering federal deficit at nearly $896 billion for FY 2019
  • PwC survey reporting a nearly 30% increase in CEO pessimism since last year
  • Duke University CFO survey noted nearly half of U.S. CFOs believe that the U.S. will be in recession by the second quarter of 2020
  • Initial trade disputes with China now escalating beyond a kerfuffle
  • Pending the 2020 election and the truly binary economic policy outcome with a Trump presidency compared to a democratic candidate TBD presidency

Conversely, there is certainly compelling data, including positive unemployment and consumer spending rates. Also, interestingly, there has never been a recession in the third year of a presidency before an incumbent election.

This time, we are advising our clients to remain extra cautious.

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