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CFOs Expect a Downturn Ahead, Deloitte Survey

June 28, 2019, 07:25 AM
Filed Under: Economy

Deloitte reports that almost all chief financial officers (97 percent) surveyed in Deloitte’s second-quarter 2019 CFO Signals survey say they expect a U.S. downturn in the next two years, but they are split on the expected duration. Of those, four in five said they expect any downturn to be mild, and about half of those said they expect a short duration. Less than 5 percent expect a sharp, prolonged downturn.

Deloitte’s 1Q19 survey indicated 84 percent of CFOs expected a downturn by the end of 2020; this quarter’s findings show about 80 percent expect a downturn to be mild.

After rebounding slightly in Q1, CFOs’ own-company optimism dipped this quarter, continuing to sit among its lowest levels in the last three years.

CFOs express strong external concerns about the impact of U.S. trade policy on global growth. CFOs again note strong internal concerns related to acquiring and retaining talent; and growing concerns about rising labor costs.

Each quarter, CFO Signals tracks the thinking and actions of leading CFOs representing North America’s largest and most influential companies. Since 2010, the survey has provided key insights into the business environment, company priorities and expectations; finance priorities; and CFOs’ personal priorities.

Sliding Forecasts of Regional Economies
In Q2, CFOs’ perceptions of the North American economy declined slightly, with 79 percent of respondents rating current conditions as good (down from 80 percent) and 24 percent expecting better conditions in a year (down from 28 percent last quarter). Perceptions of Europe declined, with 10 percent viewing current conditions as good and only 4 percent expecting better conditions in a year. CFOs’ perceptions of China’s economy increased from Q1, with 26 percent indicating current conditions are good (20 percent in Q1); however, only 10 percent expect better conditions in a year (16 percent reported in Q1).

Most Worrisome Risks
Before 2017, CFOs’ top external risks focused heavily on slow economic growth. In 2018, the fear of trade wars/ tariffs was the top external concern of CFOs. This quarter, CFOs again voiced strong concerns about trade policy—especially U.S.-China policy—and even higher concerns than last quarter about political turmoil and gridlock. Regarding internal risks, CFOs’ top concern since Q217 continues to be acquiring and retaining talent.

Talent Constrained, Not Cash Constrained
CFOs claim substantial talent constraints, but not capital constraints or shareholder pressure to use or return cash. Top uses of cash are investing for growth and productivity gains, with strong industry differences around dividends and buybacks.

The vast majority of CFOs say they are making focused growth investments, not spreading bets across multiple opportunities.

“CFOs’ views on the future performance of the North American, European, and Chinese economies settled around multiyear lows in Q2, and the overwhelming majority expect a downturn within two years. However, there may be a silver lining for businesses and workers—80 percent of CFOs expect any downturn to be mild—an indication that companies are prepared to face the challenges ahead,” said Sanford Cockrell III, National Managing Partner of the U.S. Chief Financial Officer Program, Deloitte LLP.

Key Q2 Metrics Versus Company Optimism
The net optimism index declined from last quarter's +16 to just +9 this quarter—the second-lowest reading in three years. Thirty percent of CFOs express rising optimism (down from 32 percent), and 21 percent cite declining optimism (up from 16 percent). In addition, expectations for revenue growth declined from 4.8 percent to 3.8 percent; earnings growth declined from 7.1 percent to 6.1 percent; and capital spending growth rose substantially from 5.9 percent to 7.7 percent.

“With mixed economic indicators in the U.S. and observed slowing in several key economies around the globe, it is understandable that CFOs’ optimism dipped this quarter. At the same time, we continue to see relative confidence across our client base in the underlying fundamentals of the U.S. economy and CFOs are highly focused on acquiring and retaining talent—an important priority for all leaders with such a strong job market in the U.S.,” said Joe Ucuzoglu, Deloitte US CEO.

For more details on the survey results visit here.

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