There have been predictions for the past year or so that a recession is coming. Unfortunately, no one knows when or how deep it might be. The naysayers are having an impact on the C- suite as a number of surveys highlight CFO concerns about the future. For the first time in more than a decade, there is no region of the globe with a strong enough economy to provide the push for everyone else to ride to stronger economic positions.
In the latest Deloitte CFO Signals, CFO concerns were elevated as some of the larger economies appear to be slowing, Brexit issues are intensifying, and the tariff war with China is escalating. Per Deloitte’s chief global economist, Ira Kalish, “The world increasingly appears to be on recession watch.”
Key takeaways from the report include a six-year low on CFOs view of North America’s economy, falling to 68% rating it as “good,” down from 94% just over a year ago. For the first time since Q4 of 2012, CFOs own-company optimism is negative. In just a quarter it slipped from +9 to -5. And CFOs expectations for earnings growth bottomed out at 5.6%, which is a new low for the survey.
According to National Managing Partner of the US Chief Financial Officer Program at Deloitte, Sanford Cockrell III, “CFOs’ assessments of the North American economy’s trajectory hit a new survey low this quarter, with just 15% of CFOs expecting better conditions in a year. On top of this, CFOs’ optimism regarding their own companies’ prospects fell to the lowest level in nearly seven years.”
One consequence of the pessimism is that private company CFOs prefer to stay private, with almost 85% of respondents saying they rarely or never consider going public with their company.
Duke University’s CFO Global Business Outlook is in agreement. Per the report, “The percentage of CFOs who are “more optimistic” about the economy plunged from 43.6% a year ago to 11.8% today, and the percentage of CFOs who are “less optimistic” jumped from 23.0% to 55.2%. “Economic uncertainty is a top CFO concern.””
“The CFOs’ views are consistent with other important indicators, such as the inversion of the yield curve,” said Campbell Harvey, a founding director of the survey and Fuqua finance professor. “Executives don’t want to be caught unprepared for the next recession like they were in the global financial crisis. There are plenty of warning signs and now is the time to be prudent. Who wants to put their firm at risk by increasing borrowing to fund a major new project when a recession could be on the horizon? It is no surprise that capital expenditures have dried up.”
Economic uncertainty has displaced hiring and retaining qualified employees as the top concern for CFOs. It’s not as though the issue has diminished as CFOs across industries are experiencing labor shortages in a variety or roles including engineering, mechanics, med-techs, sales, and software programmers among others.
The Fed is also causing CFOs to be concerned with their low interest rates, which are designed to help with a slowing economy. The flip side of this is higher present value of liabilities due to the low discount rates, low investor returns, corporate debt issuance increases, and lower business spending. Capital spending is predicted to increase by less than 1%, the second lowest growth rate since the end of 2009.
With more than half of CFOs in the United States expecting a recession before the 2020 election, and two-thirds expecting one by the end of 2020, it’s no surprise we’re seeing these kinds of results in quarterly surveys. If you have questions about how your hiring needs in light of this news, send us a note. Our team of executive recruiters will walk you through what you need to consider to survive and thrive in the coming year.