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CFO Signals™: Q3 2020

Some economic recovery, but growing skepticism about the pace going forward

What North America’s top finance executives are thinking—and doing.

CFOs’ assessments of the economy in Q3

In our 2Q20 survey (early May), CFOs expressed escalating worries about the impact of COVID-19 on global economies, but also conveyed considerable confidence in their companies’ ability to sufficiently manage return-to-work risks as the US economy began to reopen.

In our mid-cycle poll (mid-June), after having gone through a substantial reopening, CFOs were still mostly confident in their ability to operate effectively, safely, and profitably as economies continued to reopen. At the same time, however, they expressed increasing pessimism about how quickly economic activity and company revenue would return to pre-crisis levels.

As we look forward, CFOs and their companies continue to face daunting COVID-19 challenges and uncertainty as the virus continues to spread and as governments work to manage social and business activity. US Fed Chairman Jerome Powell has stated that the Fed has limited ability to drive the economy in the future, saying much will depend on the path of the virus.

Adding to the uncertainty for both households and businesses, major government stimulus efforts have recently expired, and Congress has yet to agree on a second round of assistance. Upcoming US elections add a further degree of near- and longer-term policy uncertainty.

So, how do CFOs see conditions developing over the rest of 2020? To help CFOs compare their thinking to that of their large-company peers, this quarter we explored companies’ current challenges, their plans for the rest of 2020, and the roles they have played during the pandemic.

When it comes to the broader North American economy, CFOs’ perceptions are mixed. On one hand, assessments of current conditions have improved a bit. On the other hand, a lower proportion of CFOs now expect better conditions in a year. For the first time in survey history, CFOs’ assessments of the Chinese economy were better than those for North America.

As for their companies’ prospects, CFOs’ expectations are also mixed. On one hand, own-company optimism rose sharply. On the other, since the metric is relative to last quarter, it is not surprising that sentiment has improved from last quarter’s historic survey low. Year-over-year growth expectations for revenue, earnings, capex, and hiring rebounded sharply from last quarter’s historic lows. But they did not rebound fully, and most are barely above zero.

Forty-two percent of CFOs say they are already at or above their pre-crisis operating level or will be by the end of 2020, but 25% expect 1Q22 or later. On average, CFOs say they expect to achieve 74% of their originally budgeted 2020 revenue (with strong industry differences), with their most-cited worries being new virus waves, more shutdowns, and the pandemic triggering a longer-term recession. Eighty-four percent say US equities are overvalued—the second-highest reading in survey history.

Looking at changes companies are making in response to the turbulent macro environment, CFOs cite strong strategic shifts toward more and longer-term remote work, a higher focus on costs and productivity, accelerated business digitization, and a shift toward remote/touchless customer interactions. They report average cash levels 25% higher than pre-pandemic, with more than half using the new cash to fund reserves for navigating uncertainty.

We also asked about CFOs’ most important roles since the pandemic hit, and the vast majority predictably cited roles centered on managing costs and liquidity. Other common roles included crisis-driven FP&A, supporting strategic changes, and leading stakeholder communication—with a focus on providing a sense of calm, balance, and stability.

Important to note this quarter is the remarkable variability of findings—both within and between industries. Services, Retail/Wholesale, and Manufacturing tended to express major challenges and to expect the slowest returns to pre-crisis operations. But within Retail/Wholesale, for example, there were strong differences between sub-sectors and between those who engage in more versus less online sales.

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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