Business Leaders’ Economic Outlook Worsens: Survey

• Fifty-two percent of CFOs view the current North American economy as good, a decrease from 64% in Q1. CFOs lowered their assessments of other regional economies as well.
• Just 18% of CFOs expect the North American economy to be better a year from now, a drop from 36% last quarter, and their outlook for other regional economies also dimmed.
• Forty-three percent of CFOs consider U.S. markets as overvalued, compared to 72% in 1Q22.
• Thirty-two percent of CFOs view debt financing as attractive, down significantly from 85% last quarter.
• Twenty-seven percent of CFOs indicate that their organizations will reach net-zero carbon emissions by 2030.
• CFOs expect to incur the most significant costs related to their organizations’ decarbonization goals in increased operating and capital expenditures, and in transforming their organizations’ overall business model and value chain.

In just 16 months, the Biden administration has overseen the downfall of a once-great economy. Supply chain disruptions, massive inflation due to government over-spending, and unaffordable gasoline, heating, and electricity due to flawed energy policies all have business leaders more pessimistic than ever.

“CFOs are expecting an increasingly gloomy economic environment across the board, which aligns with their declining expectations for performance on a year-over-year basis,” said Steve Gallucci, National Managing Partner, U.S. CFO Program, Deloitte LLP. “Against the backdrop of rising interest rates, the attractiveness of borrowing sharply diminished, and CFOs are less willing to take on greater risks.”

Why it matters to CFOs?
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. Participating CFOs represent diversified, large companies, with the vast majority reporting revenue in excess of $1 billion. Nearly one-quarter are from companies with greater than $10 billion in annual revenue.

Economic outlook
Fifty-two percent of CFOs view the current North American economy as good or very good, a decline from 64% in Q1. Meanwhile, 9% and 12% of CFOs consider current economic conditions in Europe and China as good or very good, down from 31% and 29%, respectively.

Looking a year out 18% of finance leaders indicate that conditions in North America will improve, a drop from 36% last quarter. The downward trend in CFOs’ assessments continued for other regional economies. Just 7% of CFOs believe Europe’s economy will be better in a year, down from 26% in 1Q22, and 19% expect China’s economy to improve, compared to 31% in the prior quarter.

Key operating metrics
The number of CFOs who viewed their own company’s prospects as being better compared to the three months before the survey declined to 27% from 38% in Q1. Expectations for earnings growth decreased to 8.4% from 9.2% in Q1. Revenue growth expectations also dipped, to 7.8% from 9.1%. Capital investment growth expectations decreased to 11.2% from 11.3%, while expectations for domestic hiring remained flat at 5.3%.

However, CFOs did raise their growth expectations for dividends and domestic wages. Expectations for dividends rose slightly to 4% from 3.9% in the first quarter of 2022, while domestic wage expectations increased slightly to 5.3% from 5%.

Regarding risk-taking, just over one-third (35%) of CFOs indicate that now is a good time to take greater risks, down from 47% in Q1.

View of capital markets
Amid a tumultuous period for public equities, a smaller proportion (43%) of CFOs consider U.S. equity markets to be overvalued, compared to 72% in Q1. Additionally, just 32% percent of CFOs considered debt financing attractive, a significant drop from last quarter’s 85%. Twenty-two percent of CFOs regard equity financing as attractive, compared to 37% in 1Q22.

Persistent concerns over the economy and talent
Externally, CFOs indicated that macroeconomic issues, including inflation and geopolitics, were among their top worries in Q2. The Russia-Ukraine war and its impact on supply chains weigh heavily on CFOs’ minds.

Internally, talent remained the top concern for CFOs, followed closely by strategy execution. CFOs are acutely concerned with retention and wage inflation, among other areas related to talent.

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