- DataTrek Research indicated that “recession” was less frequently mentioned in Q3 earnings calls.
- Just 11% of management teams mentioned a recession, below the peak of 42-46% in 2020-2022.
- In the third quarter, mentions of inflation dropped to 55% of businesses, down from a high of 83% in 2022.
Our chart of the day comes from DataTrek Research, which notes that mentions of some economic buzzwords in corporate earnings calls are declining, signaling corporate sentiment about the economy heading into the end of the year.
As disinflation continues and the labor market shows signs of loosening, corporate America is a little less concerned about the economy’s path.
In a Monday note, DataTrek highlighted that the number of S&P 500 companies mentioning “recession” in earnings releases has been declining throughout the year and hovered around 11% in the third quarter. While this is at the high end of the 3-11% band seen in 2013-2019, it is well below recent peaks of 42-46% in 2020 and 2022.
At the same time, DataTrek co-founders Nicholas Colas and Jessica Rabe also note that the number of S&P 500 companies mentioning “inflation” fell in the last quarter, reaching 55%, compared to a high of 83% recorded in 2022.
“Simply put, more than half of all S&P companies continue to see inflationary pressures in their cost structures and are drawing the attention of Wall Street analysts and investors,” according to DataTrek.
Taken together, “recession” and “inflation” point to easing but persistent anxiety among businesses.
“Inflation may be something you heard yesterday in the capital markets, but not in boardrooms,” Colas and Rabe said. “Stocks have moved away from recession fears, but remain high in many companies. This is a recipe for further cost cutting and we expect unemployment to rise in the coming months as a result.”
However, they also note that the constant mention of inflation and recession does not necessarily bode poorly for stocks.
“Management knows that next year’s game will be about margin management, not mindless revenue maximization. As long as the U.S. economy continues to grow next year, this should enable companies to meet or beat Wall Street analysts’ earnings estimates over the next 2 quarters.”
Meanwhile, Bloomberg reported more recently, historically, economic optimism tends to peak just before a downturn. According to Bloomberg, which noted that such an increase in mentions is currently observed, the number of news articles mentioning a “soft landing” increased before previous economic downturns.
Big Wall Street firms have mixed expectations about the economy’s prospects for next year. Goldman Sachs maintains a 15% chance of a recession, while JPMorgan strategists say a downturn appears inevitable.