Dive Brief:
- CFO optimism rebounded in recent months to the highest level since late 2021, lifted by a brighter view toward prospects for business and the broader economy, according to a quarterly survey by Deloitte.
- The proportion of top finance executives rating economic conditions in North America as good or very good rose to 57% from 34% in the second quarter, Deloitte found in a survey of 116 CFOs. Forty-six percent of respondents believe conditions will improve in the coming year compared with 34% in a Q2 survey.
- “I certainly think that CFOs are more optimistic,” Steve Gallucci, national managing partner for Deloitte’s U.S. CFO Program, said Thursday in an interview. They are “continuing to build a little more optimism — a little more resilience — that they’ll be able to weather where they are.”
Dive Insight:
Several private- and public-sector economists in recent months have ditched predictions of a downturn even as many analysts have held to forecasts of a mild recession in coming quarters.
Federal Reserve officials expect U.S. gross domestic product to grow 2.1% this year and 1.5% in 2024, according to median projections released by the central bank on Wednesday. In June, central bank officials predicted just a 1% expansion for 2023 and 1.1% growth for next year. At the same time, Fed economists abandoned a recession forecast.
A downturn or resurgence of inflation in coming months will probably belie the sunnier outlook among economists at the Fed and other organizations, former Treasury Secretary Lawrence Summers said Thursday.
“The Fed is considerably too optimistic,” Summers told Bloomberg Television, noting such headwinds as the autoworkers strike, a surge in oil prices and a spiraling U.S. budget deficit.
Fed policymakers, while pursuing the most aggressive monetary tightening in four decades, are unlikely to pilot the economy to a “soft landing,” or reduce inflation to their 2% target without causing a recession, according to Summers, a Harvard University economics professor.
“My suspicion is that it's more likely than not that they're either going to get surprised on the higher inflation side, or on the weak-or-output-downturn side,” he said. “Or possibly both could materialize in a stagflationary kind of dynamic.”
CFO expectations for revenue, earnings and hiring have improved since the second quarter, Deloitte said. At the same time, top finance executives have trimmed plans since Q2 for dividends, capital investment and wages.
Many CFOs took advantage of near-zero interest rates during the pandemic “to build out what they like to call fortress balance sheets and recapitalize their debt,” Gallucci said.
With the Fed having raised the federal funds rate by 5 percentage points since March 2022, CFOs have put “more of a focus on protecting capital” by forgoing an increase in dividends and cutting capital investment, he said.
Most CFOs view current conditions for debt and equity financing as bleak and shy from taking greater risks, Deloitte found. The proportion of CFOs who consider equities overvalued has surged to 56% from 39% in the second quarter.
Top finance executives see a threat to the business outlook from geopolitical instability, such as tension in U.S.-China relations, weakness in China’s economy and Russia’s invasion of Ukraine, Gallucci said.
The proportion of CFOs who view China's current economy positively has fallen to 8% from 17% during the second quarter, Deloitte said. Only 20% of respondents expect China’s economy to improve in the next 12 months compared with 30% in Q2.
