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CFO Signals™: Q1 2019

Anticipating a slowdown (but not a recession)

Despite strong assessments of the current North American economy, CFOs’ expectations for the North American, European, and Chinese economies remain among their lowest levels in the last two years.

CFOs' assessments of the economy in Q1

Going into 2018, our 4Q17 survey showed that CFO sentiment was riding high, buoyed by strong economic performance and prospects for lower taxes, lower health care costs, and less regulation. Since then, taxes and regulations have been reduced, and the United States has seen two years of strong economic growth, record-low unemployment, and strong stock markets (notwithstanding a tough December 2018).

But something changed starting in early 2018, and by our 4Q18 survey (following the US midterm elections), CFOs’ sentiment and expectations were becoming less optimistic. Citing worries about geopolitics, US political turmoil, and trade policy, the proportion of CFOs expecting the North American economy to be better in a year fell to just 28 percent—half the level going into 2018.

This quarter’s findings continue the downward trend. Assessments of the North American, European, and Chinese economies all declined. Own-company optimism rebounded from last quarter’s very low reading, but still sits at its third-lowest level in three years. Expectations for revenue, earnings, domestic hiring, and wages declined (only capex rose), and all metrics sit below their two-year averages.

To get a better handle on CFOs’ concerns, this quarter we asked about their expectations for a possible US downturn. Nearly three-fourths said they expect a deceleration of economic activity by the end of 2020, but only 15 percent expect an extended decline. Those expecting a downturn cited three main factors: US trade policy, the length of business and credit cycles, and slowing growth in China and Europe.

Although 15 percent of CFOs said they already see signs of a downturn in their company’s operations, less than 40 percent said their company has a detailed defensive plan. The most common downturn responses focused on reducing discretionary spending and controlling headcount, but less than 30 percent say they have already started taking defensive steps.

Diversity and inclusion

Changing gears, Deloitte’s CFO survey findings, onboarding labs, and forums have indicated that companies face substantial challenges around sourcing and retaining key talent. This quarter we asked about the role diversity and inclusion (D&I) plays in companies’ talent strategies and practices, and CFOs’ answers appear to indicate substantial efforts to use D&I to strengthen their talent base.

Two-thirds of CFOs said their company has a formal strategy for D&I, and just under half said their D&I practices are a substantial component of their company’s overall talent brand/strategy. Just over half said the company’s D&I strategy is known throughout their company.

At a tactical level, the most-cited action for fostering D&I was implementing flexible work arrangements. The next tier consisted of including diversity metrics in internal reporting, providing training around unconscious bias, and assigning D&I respond to a senior leader. To promote equitable advancement opportunities, CFOs cited diverse candidate slates, merit-based decisions, and hiring diverse leaders into senior roles.

Finally, we asked CFOs about the quantity and CFO-readiness of their direct reports, and also about their efforts to promote D&I within their teams. The average number of direct reports was 7.6, with an average “diversity” of about 40 percent (i.e., female, minority, or both). The average number of CFO-ready direct reports was about 1.5.

CFOs’ D&I tactics varied considerably but fell within four broad categories: leadership, programs, measurement, and education. Please see the full-detail report and appendix for specifics about efforts focused on both women and minorities.

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Business outlook highlights

Q1 2019 North American CFO Signals™ highlights

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.

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