CFO Signals™ 3Q 2022 has been saved
CFO Signals™ 3Q 2022
Nearly half of CFOs expect a recession in North America by 2023, but more are concerned about inflation.
CFOs’ assessments of regions’ current economic conditions declined this quarter. Still, a growing number of CFOs expect most regions to show improvement in a year, and CFOs were most positive about North America’s and China’s economic outlook 12 months ahead. Nearly three-quarters of CFOs said they were more concerned about persistent inflation than a potential recession.
For a more detailed look at this quarter’s results, be sure to download the report.
CFOs’ views of regional economies and capital markets
Compared to 2Q22, CFOs’ sentiment toward current conditions in the five economic regions covered in CFO Signals fell this quarter. Still, a growing number of CFOs expect most regions to show improvement in a year. The exception was South America, where CFOs don’t expect any change. CFOs were most positive about North America’s and China’s economic outlook 12 months out. More than one-quarter (29%) of CFOs expect improvement in North America’s economy a year ahead. Although that figure is an increase from 18% in the prior quarter, it stands below the two-year average of 47%. CFOs’ net optimism for their own companies stayed in negative territory for the second quarter in a row.
The proportion of CFOs who considered US equities overvalued in this quarter’s survey fell to 30% from 43% in the prior quarter. Almost half (46%) of CFOs indicated US equities were neither overvalued nor undervalued, while 24% regarded them as being undervalued.
Own-company financial prospects and year-over-year (YOY) growth expectations
CFOs have lower expectations for year-over-year (YOY) growth for key metrics, except for dividends, which stayed flat at 4.0%. Revenue growth is pegged at 6.2% this quarter, down from 7.8% in 2Q22; earnings growth expectations are at 6.4%, a decline from 8.4% in the prior quarter; and capital spending growth at 4.3% is also down from 2Q22’s 11.2%. Amid their concerns, CFOs also cut cut their growth expectations for domestic wages/salaries and domestic hiring—both at 5.3% last quarter—to 4.8% and 2.6%, respectively.
Compared to the previous quarter, the percentage of CFOs expressing more optimism for their companies’ financial prospects fell to 19% from 27%. This figure is the lowest it has been since the 2Q20 survey, when the COVID-19 pandemic was sweeping across the world.
Recession and inflation concerns
Almost half (46%) of the surveyed CFOs said they expect the North American economy to be in a recession by 2023. Slightly more than one-third of CFOs (39%) noted they expect the North American economy to be in a period of stagflation by 2023. Another 15% expressed a more optimistic outlook, indicating they expect the region’s economy to be growing with low to moderate inflation by the time the New Year rolls in.
CFOs’ concerns over persistent inflation outweighed angst over the possibility of a recession nearly three to one. Results varied by industry. For example, CFOs in Energy/Resources (100%) were most concerned about persistent inflation, as were more than three-quarters (88%) of CFOs in Pharma/Healthcare. CFOs in the Telecom/Media/Entertainment industry showed most concern about a recession, at 67%, compared to 33% who were most concerned about persistent inflation.
At the time of releasing these survey results, inflation was hovering at around 8.5%, and the Inflation Reduction Act had been recently signed into law.
Those CFOs who anticipate a recession are taking a number of actions to get prepared. The most-often cited step is reducing or closely managing operating expenses. Actions some CFOs are taking to prepare for a possible recession revolve around talent—controlling headcount, limiting hiring, and increasing productivity, for example. A number of CFOs are revising their capital expenditures to determine whether any could be reprioritized, deferred, or reduced. In addition, several CFOs are evaluating their customers, services, and/or products to identify opportunities to help recession proof their organizations. M&A is another strategy a handful of CFOs are considering to defend against a possible recession.
Special topic: Work, Workforce, Workplace
In recent years, many CFOs have sought to elevate their finance organizations’ ability to serve a broadening set of business needs. To meet increasing demands, CFOs have often had to alter, reduce, streamline—and even redesign—the work their teams perform. And the challenge has not necessarily been doing more with less, but rather, doing higher-value work in a smarter way, particularly in light of the Great Resignation.
This quarter, we asked CFOs about their perspectives on work, workforce, and workplace challenges.
Work—CFOs have taken several steps in the past year to alter, reduce, or streamline the types of work their finance teams perform, notably driving digital transformation and/or automation; leveraging technology and/or transforming ERP; improving and/or standardizing processes. The top three benefits of those actions are more time spent on higher-value activities, noted by 78% of CFOs; greater use of technology and automation, cited by 71% of CFOs; and deeper insights into the business, indicated by 34% of CFOs.
Workforce—When asked which capabilities within finance require greater investment, more than half of CFOs pointed to financial planning & analysis and information technology, and nearly one-third said transformation-related capabilities, while more than one-quarter cited business unit finance. Amid today’s talent challenges, 71% of CFOs said providing flexibility for work location was the most effective action for retaining talent. Sixty-three percent of CFOs cited providing career development and more clarity in growth opportunities as the most effective action, and 62% noted increasing salaries. Other actions found to be effective in retaining talent included fostering a stronger sense of purpose (34% of CFOs) and creating a stronger work community (24% of CFOs).
When asked what one change would they make to increase the effectiveness of their finance organization, CFOs’ responses most often revolved around driving digital transformation/automation, offering a flexible environment, and upskilling/reskilling talent.
Workplace—Hybrid is the workforce model that most of the surveyed CFOs said their organizations plan to use in 2023, cited by 86% of respondents; on-site and off-site were noted by 12% and 2% of CFOs, respectively. When it comes to their own finance teams, 47% of CFOs said they expect the majority to work on-site three days per week, and 22% indicated two days a week. Twelve percent said they expect the majority of their finance teams to work on-site four or more days per week. Another 6% of CFOs indicated just one day per week for the majority of their finance teams to work on-site, and 7% indicated zero days.