The prospect of recession is becoming more and more likely with unemployment topping 5% recently and the market dipping with the arrival of the New Year–and these realities have not escaped the notice of finance executives. For December, the Tatum Index of Business Conditions plummeted to the lowest point in its six-year history. "There is an increasing probability of recession this year," says Cynthia Jamison, national director of CFO services at Tatum LLC, an Atlanta-based executive search firm that conducted the survey of 259 CFOs and controllers. In the survey, for every one executive who expressed optimism, seven were pessimistic. That's down from a peak of 12 positive to 3 negative responses in May of 2007. "The signs of eroding confidence are clear," says Jamison. Capital availability, order backlogs and hiring were either lower than they were in November, or, at best, unchanged, she notes, while continuing writedowns precipitated by the persistent credit crisis, disappointing holiday sales, $100 a barrel oil prices and roller coaster markets all have contributed to the dreary outlook.

Always conservative, financial executives are playing it even closer to the vest than usual as economic uncertainty continues. "It's a Catch-22 situation," says Jamison. With CFOs providing ever more cautious forecasts, investors have little information on which to base their bets, which further depresses the market. And that, in turn, depresses CFOs who tighten the reins even tighter. According to Jamison, "It's a question of who will blink first and show some optimism."