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Are Recession Fears Replacing Supply Chain Challenges? Evidence from Fifth District Business Surveys

Regional Matters
September 1, 2022

The last year and a half have been fraught with persistent supply chain challenges, the highest rate of inflation since the 1980s, and record levels of job openings and quits. As such, it is not surprising that in the Richmond Fed's May monthly business surveys, the top three concerns across all Fifth District firms surveyed were inflation, supply chain disruptions, and availability of labor. This was corroborated by national data collected as part of the second quarter release of the Richmond Fed's CFO Survey.

When asked again about top concerns in the August monthly surveys, there was a noticeable shift in firms' responses. While many firms continued to report the same concerns as in the May surveys, particularly with respect to inflation and worker retention, declining demand and fear of recession were also top of mind.

Top Concerns from May Monthly Surveys and Second Quarter CFO Survey

In May, the most pressing concerns reported by all respondents were inflation, hiring and retaining workers, supply chain disruptions, and changing input costs. Although both manufacturing and service sector firms indicated the same top four concerns, they prioritized them differently -- e.g., a much larger share of manufacturers reported rising input costs as a top concern than their service sector counterparts.

These results mirror those of the second quarter fielding of the CFO survey: CFOs nationwide cited availability of labor, inflation, and supply chain disruptions as their primary concerns. Furthermore, CFOs grew notably more pessimistic about the health of the economy over the next four quarters, with the median expectation of real GDP growth falling to 1.7 percent and the probability of negative growth almost doubling to 20.8 percent.

Evolution of Top Concerns from May to August

CFOs' growing pessimism about the health of the economy in the second quarter began playing out in the August monthly surveys of businesses, as concerns surrounding decreasing demand and recession risk overtook concerns of fluctuating input costs and supply chain disruptions.

The differences between the concerns of manufacturing firms and service sector firms were also starker in August than in May.

In August, both sectors struggled to find and retain workers, but manufacturers were much more worried about supply chain disruptions and decreasing demand, while service sector firms were more concerned with inflation and recession risk.


Firms regionally and nationally entered the summer of 2022 with concerns similar to those they had experienced for months: supply chain challenges, difficulty finding labor, ever-changing input costs, and inflationary pressures that the nation had not seen in a generation. As we moved through the summer, however, firms' concerns began to change. As we saw in the August business surveys, Fifth District firms, especially service sector firms, were increasingly concerned about declining demand, uncertainty in economic conditions, and a potential recession. Firms are now wondering: What will come next in this post-pandemic economy?

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