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CFO Signals™: Q2 2019

Investing through an expected (mild) downturn

After riding high through 2017, CFOs’ sentiment and expectations began to decline in early 2018 as expectations of an economic downturn began to rise. The decline continued this quarter, but there was a silver lining.

CFOs' assessments of the economy in Q2

After riding high through 2017, CFOs’ sentiment and expectations began to decline in early 2018. Citing growing worries about the economic impacts of geopolitics, US political turmoil, and US trade policy, just 28 percent of CFOs in the 4Q18 survey said they expected the North American economy to be better in 2019—half the level going into 2018.

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

Likely contributing to these dour findings, 75 percent of CFOs last quarter said they expected a slowdown of US economic growth by the end of 2020 (mostly due to US trade policy, business and credit cycles, and slowing Chinese and European growth). The silver lining, however, was that few expected a recession—in fact, only 15 percent expected an extended decline in economic activity.

This quarter, CFOs’ assessments of the North American, European, and Chinese economies continued to decline, and their own-company optimism fell to its second-lowest level in three years. To put a finer point on CFOs’ expectations, this quarter we asked about the expected severity and duration of any downturn that might occur by the end of 2020.

There was a silver lining in these results, too. About 80 percent of CFOs said they expect any downturn to be mild, and about half of those said they expect a short duration (less than 5 percent expect a sharp, prolonged downturn). These expectations may help explain why, even as CFOs’ expectations for revenue, earnings, and hiring growth continued to decline this quarter (all sit at two-year lows), their expectations for capital spending continued to rise—a phenomenon evident last quarter as well.

Download the report to read the details or the executive summary to view the highlights.

Facing the prospect of a slowdown

So, with these expectations as a backdrop, where are companies channeling their efforts and cash? To find out, this quarter we asked about companies’ priorities, opportunities, and constraints, and also about how CFOs are contributing to their organizations’ efforts in what continues to be a challenging and unusual business environment.

Facing the prospect of a slowdown, relatively few CFOs cited capital constraints or shareholder pressure to use or return the cash. Their top uses of cash revolved around investments for both growth and productivity improvement, but there were substantial industry and public/private differences (especially around other cash uses). Complicating their investment plans, however, was the constraint on which nearly two-thirds of CFOs agreed—availability of talent.

When it comes to how companies are distributing their growth investments, the vast majority of CFOs said they are making focused investments instead of spreading them across multiple opportunities. When it comes to where companies are investing, CFOs say the most important markets are the United States (and Canada and Mexico for the companies located there) and China. Interestingly, the importance of Canada and Mexico to US companies seems to have declined since we last asked in the fourth quarter of 2015.

Finally, we asked CFOs about their top personal focus areas as they help their companies navigate the current business environment. Three areas comprise a clear top tier: profitability, corporate strategy, and growth. There were several other focus areas that were substantial as well, especially when viewed through an industry lens.

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Business outlook 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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