CFOs overwhelmingly expect a U.S. downturn by the end of 2020, with a slowdown seen as much more likely than a recession.
Their expectations for growth in revenue, earnings, hiring and wages declined (only capital expenditure rose); all metrics sit below their two-year averages.
Companies are using a variety of programs to promote diversity and inclusion; flexible work arrangements are the most common.
Why it matters to CFOs? Each quarter, CFO Signals tracks the thinking and actions of CFOs representing many of North America's largest and most influential companies. Since 2010, the report has provided key insights into the business environment, company priorities and expectations, finance priorities and CFOs' personal priorities.
Assessments of regional economies CFOs' perceptions of North America declined, with 80 percent rating current conditions as good (down from 88 percent) and 28 percent expecting better conditions in a year (same as last quarter). Perceptions of Europe declined, with 16 percent noting current conditions as good and only 8 percent expecting better conditions in a year; Their views of China's economy slid, with 20 percent indicating current conditions are good and 16 percent expecting better conditions in a year.
Downturn planning Nearly 85 percent of CFOs said they expect a U.S. downturn by the end of 2020, and they overwhelmingly expect a slowdown rather than a recession. Those expecting a downturn were most likely to cite U.S. trade policy, business and credit cycles, and the impacts of slowing growth in China and Europe on the U.S. economy. A minority indicated they have detailed defensive or opportunistic plans; most CFOs expect to take defensive actions, including reducing discretionary spending and limiting or reducing headcount.
Diversity and inclusion (D&I) strategy The majority of CFOs cited a formal D&I strategy; about half said the strategy is known throughout their company and embedded in their talent brand. Eight of the nine D&I tactics, such as (including diversity metrics in internal reporting, providing training around unconscious bias, assigning D&I responsibility to a senior leader, and issuing companywide principles for D&I) presented were selected by at least 40 percent of CFOs. Implementation of flexible work arrangements was the most-selected tactic.
"While two-thirds of CFOs said their organization has a formal D&I strategy, only 53 percent state that this is known throughout their company. This is an opportunity for organizations to not only develop a D&I strategy, but ensure that everyone in their organization is aware, engaged, and views it as a fundamental value in their culture." - Terri Cooper, national chief inclusion officer, Deloitte LLP
Key metrics CFOs' expectations for year-over-year revenue growth fell from 5.5 percent to 4.8 percent; their expectations for earnings growth slid from 7.3 percent to 7.1 percent; capital spending rose from 5.0 percent to 5.9 percent; and plans for hiring fell from 3.2 percent to 2.1 percent (all sit below their two-year averages). Their expectations for dividend growth declined from 4.5 percent to 3.9 percent, the lowest level since the fourth quarter of 2017.
Own-company prospects The net optimism index for CFOs sentiment on their own companies rebounded from last quarter's dismal +3 to +16 — better, but is still the third-lowest level in three years. Thirty-two percent of CFOs expressed rising optimism (26 percent last quarter), and 16 percent declining optimism (23 percent last quarter).
Internal versus external risks CFOs voiced even stronger concerns about trade policy (especially U.S.-China policy) and continuing concerns about economic risks/slowdown and U.S. political turmoil. For internal risks, CFOs again expressed strong concerns related to talent and strategy execution. Other concerns such as achieving growth and managing costs continued to increase, as did worries related to adaptation, change, prioritization and overload.
Business focus for next year CFOs indicated a bias toward revenue growth over cost reduction (51 percent versus 25 percent), investing cash over returning it (46 percent versus 19 percent), current offerings over new ones (40 percent versus 36 percent), and current geographies over new ones (64 percent versus 12 percent).
Methodology Each quarter, CFO Signals tracks the thinking and actions of CFOs representing many of North America's largest and most influential organizations. This report summarizes CFOs' opinions in four areas: business environment; company priorities and expectations; finance priorities; and CFOs' personal priorities.
The Deloitte CFO Signals survey for the first quarter of 2019 was conducted during the two-week period opening Feb. 11, 2019 and ending Feb. 22, 2019. A total of 158 CFOs responded. Sixty-nine percent of respondents were from public companies, and 84 percent were from companies with more than $1 billion in annual revenue.
For more information about Deloitte's CFO Signals, or to inquire about participating in the survey, please contact [email protected]
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