CFO Signals™: Q1 2020 has been saved
CFO Signals™: Q1 2020
Capital spending pullback expected—even before coronavirus spread and markets fell
What North America’s top finance executives are thinking—and doing.
This quarter’s survey closed on Friday, February 21—when coronavirus was known to be a threat, but before news emerged about its rapid spread to several regions outside China (and before equity markets saw significant declines beginning the week of February 24).
CFOs’ assessments of the economy in Q1
This time last year, there was substantial optimism underlying CFOs’ otherwise restrained sentiment. Although growth expectations for revenue, earnings, and hiring had weakened, and own-company optimism had fallen from its 2018 highs, only 15 percent said they saw a full-blown recession on the horizon, and about 80 percent expected any downturn to be mild. Accordingly, capital spending expectations continued to rise even as other metrics faltered.
Much of that positive sentiment waned later in the year, however, as major economies slowed and US-China trade tensions escalated. Several key metrics hit multi-year lows, with the own company optimism index turning negative for the first time in nearly seven years. Capital spending expectations finally capitulated, falling sharply to a three-year low.
As they looked toward 2020 last quarter, CFOs expressed continuing concerns about trade policy and new concerns about consumer and business spending. Worries about US elections also began to emerge, with two-thirds of CFOs saying US performance beyond 2020 will depend substantially on the outcome. Expectations for revenue and earnings growth remained at or near multi-year lows, and those for capital spending and hiring were again depressed.
Still, own-company optimism seemed to be rising and only three percent of CFOs said they expected a true recession anytime soon. But that was before coronavirus (COVID-19) emerged as major worldwide health and economic threat.
This quarter’s survey closed on Friday, February 21—when coronavirus was known to be a threat, but before news emerged about its rapid spread to several regions outside China (and before equity markets experienced significant volatility starting the following Monday). Even before this news, CFOs had already pushed the virus to the top of their list of most worrisome risks, supplanting long-standing leaders such as trade wars and political turmoil.
This quarter’s assessments of the current Chinese economy understandably declined. But expectations for performance a year from now actually improved, possibly reflecting optimism about the new US-China trade deal and initial expectations that the virus’s impacts might not be long-lived or widely spread. Similarly, sentiment regarding the North American and European economies also showed improvement.
This quarter’s expectations for revenue and earnings remained muted, with one of the lowest revenue growth expectations in three years and the second-lowest for earnings growth in survey history. Capital spending growth slid sharply to a four-year low (the second-lowest level in a decade), with particular weakness in the US and within the Manufacturing and Service sectors.
In any event, it seems likely that, had the survey been conducted a week or two later, these numbers would have been even more somber. And it seems unlikely that own-company optimism, which continued to improve this quarter, would have climbed at this quarter’s rate (if at all).
Nevertheless, this quarter’s survey also aims to provide helpful insights into business transformation—specifically, around the types and drivers of transformation, and the implications for CFOs and finance. In short, CFOs’ most reported transformations involved changes to business strategies/models and upgrades to core business processes. The top drivers were changing customer demands and disruptive technologies, and CFOs’ roles were mostly as co-leaders and enablers. The top implications for finance were around new and/or expanded decision support (better decision speed and quality, and stronger data and analytics expertise) and stronger operational support (especially around the establishment and management of key metrics).
Finally, we took a fresh look at how CFOs allocate their time between their roles of strategist, catalyst, steward, and operator. This quarter’s findings showed a skew toward the first two roles—but only slightly, and not nearly to the extent CFOs say they prefer. In the changed business environment, however, it may be the latter two roles that will matter most.
About Deloitte LLP's CFO Signals™ survey
CFO Signals™ is about CFO issues. This quarterly survey tracks the thinking and actions of leading CFOs—representing North America’s largest and most influential companies—across four predominant areas: business environment, company priorities and expectations, finance priorities, and personal priorities.
Learn more about Deloitte's CFO Signals™ survey.