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CFO Optimism Hits New High in Deloitte CFO Signals Survey

January 19, 2018, 07:30 AM
Filed Under: Economic Commentary
Related: Deloitte, Economy

Deloitte's CFO Signals™ survey for the fourth quarter (Q4 2017) of chief financial officers representing many of North America's largest and most influential companies finds a surge in optimism among CFOs about the current and future states of major economic regions as well as their own company prospects. After declining for two quarters, net optimism rose sharply to plus 47 this quarter compared with plus 29 last quarter. About 52 percent of CFOs expressed rising optimism, while just five percent cited declining optimism.

After three strong quarters in 2017, CFOs' assessments of the current status of the North American economy hit a new survey high, with 74 percent of CFOs saying current conditions are good compared with 64 percent last quarter; while 56 percent expect better conditions in a year, up sharply from 45 percent last quarter. CFOs' assessments of the European and Chinese economies showed marked improvement, with 35 percent of CFOs saying current conditions in Europe are good, up from 29 percent last quarter and well above the levels registered over the past five years—and 49 percent of CFOs saying current conditions in China are good, up from 32 percent last quarter and a new survey high. 41 percent of CFOs expect better conditions in China in a year, up sharply from 30 percent and another survey high.

All four business outlook metrics, tracked by the survey for 31 consecutive quarters, remain strong. Revenue growth expectations declined from 5.7 percent to 4.7 percent, but remain above the two-year average of 4.4 percent. Earnings growth rose to 8.4 percent from 7.9 percent last quarter and remains above its two-year average. Capital investment growth fell for the third straight quarter, from 7.3 percent to 6.5 percent, still among its five-year highs. Finally, domestic hiring growth slid from 2.6 percent to two percent.

With regard to business focus for next year, the bias toward revenue growth over cost reduction tied for the survey high, but last quarter's shift toward new offerings and geographies reversed. About 61 percent of CFOs say they are biased toward revenue growth, among the highest levels in survey history, and only 18 percent claim a bias toward cost reduction, one of the lowest levels. The bias toward investing cash over returning it (56 percent versus 18 percent) declined slightly but remains near its survey high at plus 38 percent. CFOs also favor focusing on current geographies over new ones (65 percent versus 11 percent) and organic growth over inorganic growth (63 percent versus 16 percent). Additionally, with equity markets near their historic highs, 84 percent of surveyed CFOs say US equity markets are overvalued—a new survey high.

This quarter's survey asked CFOs a series of questions about business planning in 2018. When asked about what trends and disruptors are most impacting their longer-term business strategy, better data analytics was the most cited factor overall and a top-three factor in all eight industries, with convergence/disruption close behind. Nearly 60 percent of CFOs expect new technologies will substantially affect their offerings and operations, and more than half say their business models will have a digital component. CFOs also expect a heavy focus on securing and retaining talent, and well over half say they will work to substitute technology for labor.


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