CFO Signals™: Q4 2019

Highlights from the Q4 2019 results

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CFOs’ assessments of the economy in Q4

A year ago, as CFOs looked toward 2019, just 28 percent said they expected the North American economy to improve over the next year—half the level going into 2018. Their assessments declined further in the first half of 2019, with 74 percent saying they expected a US slowdown by the end of 2020. Meanwhile, growth expectations for revenue, earnings, and hiring all declined, and own-company optimism slid from its 2018 highs.

Even so, there was optimism underlying CFOs’ sentiment. In the first quarter of this year, only 15 percent said they expected a full-blown recession, and about 80 percent said they expected any downturn to be mild. Reflecting this optimism, capital spending growth expectations continued to rise even as other metrics declined.

Much of that positive sentiment waned last quarter. CFOs’ sources of concern intensified, with major economies slowing, US-China trade tensions escalating, and North American trade issues remaining unresolved. Accordingly, several key metrics hit multiyear lows. Notably, the own-company optimism index turned negative for the first time in nearly seven years, and capital spending expectations, which had been the lone holdout, fell sharply to a three-year low.

This quarter, as CFOs look toward 2020, little has changed on economic and policy fronts to raise their outlook. The US economy is again the relative bright spot, with 30 percent of CFOs expecting improvement next year, and trade policy remains CFOs’ most worrisome external risk. The 2020 US elections loom large, however, with nearly two-thirds saying US economic performance beyond 2020 will depend substantially on the outcome.

The good news is that only three percent now say they expect a true recession, well down from Q1 2019. But 97 percent say a downturn has either already begun or will occur in 2020. Moreover, expectations for consumer and business spending have fallen sharply, and CFOs are less likely than last year to expect higher industry revenue and prices. And they cite much more defensive action around expenses and hiring than in Q1 2019.

Meanwhile, CFOs’ performance projections for revenue and earnings remain near last quarter’s multiyear lows, and their expectations for capital spending and hiring are again notably depressed. And while the own-company optimism index rose from last quarter’s low, it is still quite weak—with only three lower readings in the last 15 quarters.

As we do in every fourth-quarter survey, this quarter we asked CFOs about their outlooks for the coming year on a number of fronts. From a capital markets standpoint, CFOs expect very low interest rates and 10-year bond yields for the next calendar year—a much different outlook from a year ago. They again expect a strong US dollar.

We also explored how companies have adjusted their geographic focus in light of major economic, policy, and cost shifts over the past three years. About 45 percent of CFOs say their company has increased its focus on North American markets (only 10 percent cite a reduced focus), and they are also more likely to say they have increased rather than decreased their market focus on Europe, China, and other Asian markets.

From the standpoint of locating their operations, CFOs were twice as likely to say they have offshored capacity from North America as to say they have onshored operations to North America. They were also more likely to say they have expanded their operations rather than contracted them in Europe, China, and other Asian markets.

Finally, in coordination with our European colleagues, we examined the pressure companies are under to address climate change. More than 70 percent of North American CFOs say their company is under at least moderate pressure to act from at least one stakeholder group (mostly their employees, customers, and board), and more than 90 percent say they have taken at least one action in response (mostly increasing their efficiency of energy use, including management of climate risk in their governance processes, and using energy-efficient or climate-friendly technologies and equipment). Overall, 52 percent of CFOs say their company already has or is working on greenhouse gas reduction targets.

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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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