What Elon Musk, David Solomon, and other CEOs are saying about the likelihood of a recession–and how they’re preparing for it

July 27, 2022, 12:00 PM UTC
Elon Musk, Jane Fraser, and David Solomon.
Musk: Theo Wargo—Getty Images; Fraser: Kyle Grillot—Bloomberg/Getty Images; Solomon: Stuart Isett—Fortune

An economic downturn is likely underway. Inflation hit 9.1% in June, the highest it’s been in over 40 years, and prices have skyrocketed as supply chain constraints, stemming from the ongoing COVID-19 pandemic, have worsened amid the Russia-Ukraine conflict.

Varying projections from business leaders about the likelihood of a recession are emerging. Some, like Elon Musk, believe we’re already in one. Others, like Best Buy CEO Corie Barry, are skeptical that a full recession is coming. Many land somewhere in the middle, believing a recession is likely on the way, but diverging on its severity. All together, they agree that for leaders today, robust scenario planning and effectively leveraging data and analytics will be critical in preparing for an economic downturn. 

“This is going to be a more dynamic, less predictable environment than we’ve ever had, which is why it’s so important for our clients to stay very close to the data they have access to, and stay current in scenario planning,” says Carl Carande, who as vice chair of KPMG’s advisory practice is responsible for designing and executing growth strategies. “What we’re seeing today is likely going to change 30 days from now.”

The most agile companies are making strategic decisions now, ahead of the downturn, to curtail future costs and prepare for growth during the recovery period. They’re doing so by diligently managing their liquidity and balance sheets, Carande says, and restructuring their cost base to avoid passing higher prices on to customers. They’re also creating an offensive M&A strategy based on growth opportunities they’ve identified during scenario planning. 

While building resiliency and robust M&A pipelines is reminiscent of past recession playbooks, how CEOs will approach these areas has changed. Take cost reduction strategies, for instance. Before, it might have entailed consolidating suppliers to get the lowest possible price.

“Now it’s how do I think about dual or tri-sourcing my most important materials so I can ensure supply? And how do I balance that against cost reduction or cost avoidance? Those nuances have to be thought through in this new recessionary environment,” says Jason Heinrich, a senior partner at Bain who leads its performance improvement practice in the Americas and its global cost transformation solution.

Still, there is a dry upside to an economic downturn: It allows CEOs to set themselves and their leadership strategies apart. 

“There is no better time to be a CEO today,” says Asutosh Padhi, senior partner and North America managing partner for McKinsey. “It doesn’t mean it’s easy to be a CEO, but the impact of the moves you have will introduce a much higher range of outcomes today than it probably did a few years ago.”

Mitch Berlin, vice chair of strategy and transactions at EY Americas, echoes a similar sentiment. “The best companies are not going to be caught off guard by this. They know the different levers out there, and they can predict which way they’re going to go.” Those companies are also making use of data scientists to create predictive analytics and applying them to contingency plans. Many companies have already utilized this practice in their COVID-19 response.

Berlin recalls a client who was struggling get products into stores where COVID was spiking and constrained by tight supply chains. The client turned to multiple data sources, such as data on health and inventory, to inform its distribution strategy. “So triangulating CDC data, logistics data, store data, and sales data to figure out how to move product from wherever you can get it to the zip codes where COVID was spiking,” he says. “That muscle that they built then, they need to start flexing now to prepare for the recession.”

Companies are also turning a critical eye to their human capital strategy, including layoffs and salary cuts. As demonstrated by a wave of tech companies in recent months, employers may feel compelled to scale down their workforce as a first measure. But the Great Resignation has created a highly competitive talent market, and employers now face higher reputational risk with workforce missteps. The labor market remains strong, too; unemployment levels held at 3.6% in June, and there were over 11 million job openings at the end of May.

“We’re cautioning our clients to be very sensitive to their human capital management strategies,” Carande says. Rushing to cut staff or scale back on benefits programs could result in a major setback for employers. “We see strong employment, especially in the U.S., and we’re still seeing really difficult skilled resources to find and deploy. We expect that to continue.”

With recession talk growing stronger, it’s unsurprising that corporate leaders, like Tesla CEO Elon Musk and JPMorgan CEO Jamie Dimon, have publicized their expectations for a recession.

“Regardless of what you believe, I think you need a good set of scenarios and options to have a robust strategy that you can execute under a different set of futures,” Heinrich says. Here’s what some of the most prominent CEOs have said about their recession planning.

Elon Musk, Tesla

The multi-company CEO, most notably of Tesla, has made several remarks about a potential U.S. economic downturn. In May, Musk said he believed the U.S. was already in a recession that could last between one year and 18 months, noting that recessions “are not necessarily a bad thing” and are inevitable if an economic boom lasts too long.

“There’s certainly a lesson here. If one is making a useful product and has a company that makes sense, make sure you’re not running things too close to the edge from a capital standpoint,” Musk said at the All-In tech conference that month. Companies should keep some “capital reserves to last through irrational times.”

In June, he emailed Tesla executives that he had a “super bad feeling” about the economy and said Tesla would cut 10% of its staff.

“A recession is inevitable at some point. As to whether there is a recession in the near term, that is more likely than not,” Musk said at at the Qatar Economic Forum on June 21. “It is not a certainty, but it appears more likely than not.”

Jamie Dimon, JPMorgan Chase

In April, JPMorgan Chase CEO Jamie Dimon said there were “very powerful forces” threatening a recession in the U.S. In early May, he estimated that the Federal Reserve has a 33% chance of outright avoiding a recession, with the remaining likelihood split evenly between a mild and severe recession.

In late May, Dimon compared the chances of a recession to storm clouds, saying they “may dissipate.” Just one week later, his outlook soured again, comparing the likely recession to a hurricane.

“We don’t know if it’s a minor one or Superstorm Sandy. You better brace yourself,” Dimon said at the bank’s investor day presentation. “JPMorgan is bracing ourselves, and we’re going to be very conservative with our balance sheet.”

The bank’s outlook has remained mostly grim following its second quarter. Profits declined 28% from the year prior and it reported earnings of just $2.76 per share, lower than the $2.88 analysts expected. The bank announced it would suspend share buybacks.

“Rates are rising because of inflation and, in my view, they’ll go up more than people think,” Dimon told reporters on July 14. “Quantitative tightening will reduce liquidity in global markets and stock prices are down a lot.”

But he did point to a silver lining: “If we go into any recession, consumers are in good shape. If you spoke to businesses, you’d hear CEOs say things are looking good, and I agree.”

David Solomon, Goldman Sachs

As of June, the investment bank estimates a 30% chance the U.S. economy will fall into a recession over the next year.

“We see inflation deeply entrenched in the economy, and what’s unusual about this particular period is that both demand and supply are being affected by exogenous events, namely the pandemic and the war on Ukraine,” CEO David Solomon told investors during Goldman’s second-quarter earnings call on July 18. 

Solomon added that inflation remains a persistent issue in supply chains, but the firm’s economists believe inflation will “move lower” in the rest of the year.

“The answer is uncertain, and we will all be watching it very closely,” Solomon said. “I expect there’s going to be more volatility, and there’s going to be more uncertainty. And in light of the current environment, we will manage all our resources cautiously.”

Jane Fraser, Citigroup

Citigroup CEO Jane Fraser said Europe is more likely to head into a recession than the U.S. during an investor conference on June 3. 

“Europe definitely felt more likely to be heading into a recession than you see in the U.S.,” she said, though she noted a recession in the U.S. would not be easy to avoid. The bank’s traders are still busy helping corporate clients manage foreign exchange and volatility, but she contended that there’s been a year-over-year slowdown.

“We probably have a little bit less confidence about how active the second half of the year will be,” Fraser said. “You could see some more things coming back, so we’re in a bit more of a wait-and-see mode to see what happens there.”

James Gorman, Morgan Stanley

Morgan Stanley economists said in late June that there is a 35% chance the U.S. dips into a recession within the next year.

Earlier that month, CEO James Gorman said there was a 50% chance the U.S. economy would dip into a recession, though it’s unlikely to be severe. 

“It’s going to be bumpy. People’s 401(K) plans are going to be down this year, but we’re unlikely at this stage to go into a deep or long recession,” Gorman said.

Brian Moynihan, Bank of America

Bank of America is more optimistic with its economic outlook, citing strong consumer spending, which the bank reports is up 13% this year.

“U.S. consumers remain quite resilient,” Moynihan said in July. “The overall average deposit balances for most cohorts are higher than they were both last quarter and even rose in June versus May…and importantly, we’re seeing no deterioration in our customers’ asset quality, and they have the capability to borrow.” 

Charlie Scharf, Wells Fargo

“It’s going to be hard to avoid some kind of recession,” Wells Fargo CEO Charlie Scharf said at the Wall Street Journal’s Future of Everything Festival in May. But he also noted that consumer and business resilience could indicate a less severe recession.

“The fact that everyone is so strong going into this should hopefully provide a cushion such that whatever recession there is, if there is one, is short and not all that deep,” he said.

Adena Friedman, Nasdaq

“There are a lot of factors out there in the world that are making it really hard for anyone to predict the future right now, including investors,” Nasdaq CEO Adena Friedman told CNBC at the World Economic Forum in May. Friedman said it’s difficult for investors to make a risk decision and that it’s likely not the right window to try to raise a lot of capital in the public markets, though she noted it won’t always be that way.

“Make sure you’re prepared,” she said, highlighting that there are currently 270 companies that have filed to go public on NASDAQ. “Get your control structure in place, get your financials ready because when the window does open, you want to take advantage of it.” 

Doug McMillon, Walmart

Inflation is going to “last a while,” Walmart chief executive Doug McMillon told Fortune CEO Alan Murray.

“We’re in 24 different countries. So we’ve seen inflation, we’ve seen supply chain challenges before, and not all of this was a surprise. But in the U.S. specifically, what happens kind of midway through the first quarter of this year was more dramatic and faster paced than we anticipated. Jewel prices being higher and other challenges emerged.”

The company had strong momentum pre-pandemic. “But then when the pandemic occurred—2020, 2021—a number of things happened that put some tailwinds behind our business,” McMillon said. “People staying at home, stimulus dollars in the U.S. that caused people to spend more money on goods.”

Those goods ranged from food to discretionary items like home decor and lawn and gardens. Walmart experienced more consumer demand than it expected “by a longshot,” the CEO said.

“Because that lasted for so long, call it two years, the supply chain gets stretched in ways that it hadn’t been stretched before. The rubber band gets pulled and pulled and pulled. Well, that inevitably leads to inflation.” 

Walmart, McMillon said, is focused on trying to “provide the best value that we can for customers, and manage our costs appropriately and our inventory levels.” 

Brian Cornell, Target

Target announced in June that it would reduce its inventory by offering discounts, canceling orders, and reexamining its expenses.

“I recognized after a few weeks of looking at our own stores, analyzing our business, looking at competition, and hearing from our team that we [had] to address this problem upfront,” Cornell said at the Economic Club of New York in June.

“We made the tough decision based on what we were seeing in the industry, and back from our guests, our team—the best thing to do was deal with this upfront and deliver on time.” 

Corie Barry, Best Buy

“It’s fair to say that we’re factoring in elements of softer demand, but we are not planning for a full recession,” Barry said during the electronics retailer’s earnings call on May 24. Revenue fell by $1 billion in the first quarter from the year prior, and the company slashed its revenue estimates for the rest of the year. The company fared better than Wall Street’s expectations, though.

“Consumer electronics over time is a stable industry. And the last two years have clearly underscored the importance of tech in people’s lives,” Barry said.

Ron O’Hanley, State Street

“The likelihood is there will be a recession,” State Street CEO Ron O’Hanley told Bloomberg in July. O’Hanley estimates it will hit in late 2022 or early 2023.

“You’re already seeing a fair amount of significant inventory buildup,” O’Hanley said. “There’s just a lot of reason to believe that a good old-fashioned supply-demand recession is in our future.”

Sundar Pichai, Google

Google and Alphabet CEO Sundar Pichai told employees in an email that the company will slow hiring and investments through 2023.

“Like all companies, we’re not immune to economic headwinds,” Pichai wrote. “We need to be more entrepreneurial, working with greater urgency, sharper focus, and more hunger than we’ve shown on sunnier days.”

“Because of the hiring progress achieved so far this year, we’ll be slowing the pace of hiring for the rest of the year, while still supporting our most important opportunities,” he added. “For the balance of 2022 and 2023, the company will focus on hiring engineering, technical and other critical roles.”

Craig Jelinek, Costco

The wholesale retailer’s CEO Craig Jelinek remained firm in his refusal to increase the price of membership fees or consumer goods like its hot dog and soda combo, which has remained at $1.50 since 1985. “Right now, it’s not on the table and I don’t think it’s the right time.”

“Overall, I think the consumer is not doing bad. As you can see unemployment is down significantly. If people want to work, they can work, so my view at the moment: things aren’t so bad,” Jelinek told CNBC in July.

John Stankey, AT&T

“I don’t want to say we’re recession-proof. I don’t think any business is recession-proof,” AT&T CEO John Stankey told Barron’s in April. “But when we do our customer research and ask them if they’d prefer to give up their cell phone, their electricity, their vehicle, other things first—we rank very high on that. We’re one of the few services our customers will fight to keep. I think they said they’ll still want to breathe before giving up their cell phone, but the reality is we offer an essential service for people today. It doesn’t mean that customers in a high-inflation time won’t make choices and look to save a few bucks here and there. I think every industry is exposed to that.”

The company hasn’t seen a slowdown in demand yet. “We’re actually seeing things as pretty robust at this juncture. But we’ve started to look at things like taking conservative increases to bad debt reserves, making sure we don’t fall behind on those types of things,” Stankey said. “We’re preparing for the reality that there might be a tighter economic environment moving forward, but we haven’t seen it manifest itself yet.”

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