North American CFOs Expect Talent/Labor Costs and Inflation to Increase Substantially in 2022: Deloitte CFO Signals™ Survey Q4 2021

NEW YORK, Dec. 16, 2021 /PRNewswire/ --

Key takeaways

• An overwhelming majority (97%) of CFOs agree that talent/labor costs will increase substantially in 2022.
• Seventy-two percent of CFOs rated the current North American economy as good, down from 78% in 3Q21; 45% expect conditions to be better a year out, a decline from 54%.
• Compared to three months ago, 49% of CFOs are more optimistic about their companies' financial prospects, down from 66% in 3Q21.
• Talent and labor concerns continue to dominate internal risks, while inflation and supply chain ranked as chief external risk concerns.
• Three-quarters of CFOs expect the Federal Reserve to raise the target interest rate for U.S. federal funds to range between 0.26% and 1.0%. Nearly half (46%) of CFOs expect it to occur in the second quarter of 2022.
• Ninety-two percent of CFOs indicate their organizations will have more automation and technologies embedded in operations.

Why it matters to CFOs?
Each quarter, CFO Signals™ tracks the thinking and actions of leading CFOs representing North America's largest and most influential companies. Since 2010, the survey has provided key insights into the business environment, company priorities and expectations, finance priorities, and CFOs' personal priorities. Participating CFOs represent diversified, large companies, with the vast majority reporting revenue in excess of $1 billion. More than one-quarter are from companies with greater than $10 billion in revenue.

Economic outlook and own-company financial prospects
Seventy-two percent of CFOs rated the current North American economy as good, down from 78% in 3Q21; 45% expect conditions to be better a year out, a decline from 54% in the prior quarter and 62% in 2Q21. Forty percent of CFOs believe Europe's economy will be better in 12 months, a decline from 48% in 3Q21. CFOs' assessment of China's economy a year out also declined, with 28% expecting it to be better, compared to 55% in the prior quarter. Less than half (49%) of CFOs feel more optimistic about their company prospects than they did three months ago, a drop from the prior quarter's 66%.

Operational concerns and risk-taking appetite
Regarding internal risks, talent/labor continues to be CFOs' leading internal risk, especially with respect to hiring, retention, attrition, burnout, employee well-being and development. Almost all (97%) CFOs agree that talent/labor costs will increase substantially in 2022. CFOs also relayed concerns over return-to-work challenges, including the hybrid work model. 

Regarding external risks, CFOs ranked inflation, including wage inflation, and supply chain issues as their top external concerns, with half of respondents citing inflation and almost one-third mentioning supply chain. In this quarter, 57% of CFOs indicated now is a good time to be taking greater risks, down from 65% in the two prior quarters.

Key operating metrics
In Q4, CFOs lowered their expectations for year-over-year (YOY) growth for revenue, earnings and dividends, compared to the prior quarter. Revenue growth decreased to 7.8% from 8.5% in the third quarter of 2021. Expectations for earnings growth fell to 9.6% from 12.6% in 3Q21, and dividend growth expectations saw a slight dip to 3.7% from 3.8%.

In contrast, CFOs raised their YOY growth expectations for capital spending, domestic hiring, and domestic wages and salaries from the prior quarter. Capital spending growth expectations increased to 11.5% from 8.8%. Domestic hiring growth expectations also rose — to 5.8% from 4.8% — while expectations for growth in domestic wages and salaries increased to 5.2% from 4.3%.

CFOs' top priorities in 2022
Talent and labor are a top priority for CFOs this quarter. Reflecting on the challenges of return-to-work — hybrid or otherwise — and the Great Resignation, the number of times CFOs cited talent/labor and related issues heavily outweighed other priorities for 2022. Financial performance was also frequently cited by CFOs in this quarter's survey as a top priority. CFOs are laser-focused on improving their companies' bottom lines, and they plan to use a range of levers to do so. Growth was the third priority that was most frequently mentioned by CFOs, with an emphasis on generating more revenue, increasing sales, optimizing the capital structure to finance growth strategies, investing in growth opportunities, and supporting new product launches.

Monetary/tax developments
When surveyed about the timing of a potential increase in interest rates by the Federal Reserve, nearly one-fourth of CFOs (23%) indicated the first quarter of 2022, and another 23% projected it will occur in the third quarter of next year. Almost half of CFOs (46%) indicated the increase would take place in the second quarter of 2022. In addition, the vast majority of CFOs (96%) are not making any plans to adjust their offshoring arrangements as a result of the global tax agreement spearheaded by the Organization for Economic Co-operation and Development, which set a minimum corporate tax rate of 15%.

C-suite relationships
When CFOs were asked to rank C-suite relationships in terms of importance to their personal success, they ranked the top five as follows: the chief executive officer, business unit leaders or presidents, the chief operations officer, the chief information/technology officer, and board directors, including the audit committee. CFOs indicated they spend the most time per month with CEOs (25.4 hours on average), followed by 18.3 hours on average with business unit leaders or presidents, and an average of 16.5 hours with the chief operations officer. When it comes to which C-suite relationship CFOs would like to most improve, the top three were business unit leaders or presidents, the CEO, and the chief information/technology officer.

Key quotes
"CFOs are slightly less optimistic this quarter, both about their own company's performance and for the economy. Talent concerns, including rising labor costs, will likely be a defining issue of 2022," said Steve Gallucci, national managing partner, Global and U.S. Chief Financial Officer Program, Deloitte LLP. "Heading into the new year, the organizations that crack the code on attracting and retaining talent in this turbulent labor market should be primed for success."  

"CFOs anticipate that the U.S. Federal Reserve will raise interest rates in 2022 but remain divided on just how high the increase will be. Ultimately, monetary and tax policy, and where inflation ends up, will play a key role in CFOs' strategic calculus in 2022," said Ira Kalish, Deloitte Global's chief global economist.

Methodology
Every quarter, Deloitte's CFO Signals closely follows the thinking and priorities of leading CFOs who represent some of North America's largest and most impactful organizations. This report summarizes CFOs' opinions across four key areas: business environment, company expectations and priorities, financial priorities, and personal priorities.

The CFO Signals survey for the fourth quarter of 2021 was conducted between Nov. 8, 2021, and Nov. 22, 2021. A total of 130 CFOs participated in this quarter's survey. This survey seeks responses from client CFOs across the United States, Canada and Mexico, and the vast majority are from companies with more than $1 billion in annual revenue. Participation is open to all industries except public sector entities.

To see additional results from Deloitte's 4Q21 CFO Signals survey, download a copy at www.deloitte.com/us/cfosignals4Q2021.

For more information about Deloitte CFO Signals, or to inquire about participating in the survey, please contact [email protected].

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SOURCE Deloitte