CFOs might not be breaking out the champagne yet, but they’re not headed for the bomb shelters either, according to a pair of recent surveys.
CFOs are becoming a little bit more optimistic about the US economy and are still confident about their own companies prospects, according to The CFO Survey, a quarterly survey produced by Duke University and the Federal Reserve Banks of Richmond and Atlanta. Meanwhile, Deloitte’s CFO Signals Survey 1Q 2023, released in mid-March, also found CFOs to be more confident about the economy, more willing to take risks, but at the same time, planning for a mild recession this year.
The Duke/Fed CFO Survey, which closed on March 10, found that CFOs “increased their expectations for real GDP growth in 2023.” Participants reported that their optimism about the economy was at 55 on a scale of 0–100, up from 53 in Q4 ’22. While an improvement over last quarter’s results, CFO optimism on the economy still remains below the historic average score of 60, according to The CFO Survey.
That tracks with Deloitte’s findings that 54% of CFOs expect the North American economy to improve over the next 12 months. But Deloitte also found that 65% of CFOs are expecting inflation to “range between 4% to 6% by the end of 2023.”
CFOs also had pretty solid confidence in prospects for their own businesses. Deloitte reported a 12% jump in CFO optimism about their organization’s financial prospects from the prior quarter. Deloitte also noted that CFOs “raised their year over year growth expectations for revenue, earnings, capital investment, and domestic hiring” in their survey.
The Duke/Fed survey found that CFOs were still bullish on their own companies, but maybe slightly less so than last year.
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“Firms continue to anticipate employment and revenue growth in 2023, albeit at a slower pace than last year,” said Atlanta Fed economist Brent Meyer in a statement. “Even though CFOs improved their economic outlook somewhat, they noted a confluence of challenges as they navigate a historically tight labor market, persistently high pricing pressures, and tighter monetary policy going into 2023.”
But we wouldn’t start singing “Don’t Worry Be Happy” just yet. There are still significant pain points dragging on profitability for CFOs, according to the Duke/Fed survey. Inflation, tight labor markets, and monetary policy were the top three concerns for respondents in the Duke/Fed survey.
Energy was a drag too: Three-quarters of the firms surveyed by Duke/Fed reported higher energy costs since the beginning of 2022. While most reported that rising energy costs decreased profitability, only 20% said they passed the majority of the added cost to consumers.
There’s some belt-tightening going on, too. The number of firms that decreased their spending over the past three months in the Duke/Fed survey rose 5 percentage points from last quarter to 23%. Also, fewer companies are planning capital investments within the next six months, according to the Duke/Fed survey. Among the companies that said they were not investing, nearly a quarter cited tough financing conditions.
Although anticipating a mild recession in the near term, Deloitte also found that CFOs are already focusing on a recovery. The firm found CFOs are investing in growth and new markets, controlling costs, and building inventory and capacity to address demand.–-LR/DA