Just-in-Case Decision Making

In our latest CFO Signals survey, CFOs confront a slow-growth economy.


Like Fed Chairman Janet Yellen, chief financial officers still need to be convinced that the U.S. economy can sustain its positive momentum.

Stung by a sluggish start to the year, finance executives have perched themselves on the border between expansion and contraction, swiveling their heads from side to side in search of persuasive indicators. Their skittish sentiment finds expression throughout Deloitte’s latest CFO Signals, a quarterly survey of finance executives across North America. Respondents came from 114 companies, with about 70% from public entities, and nearly 85% from companies with more than $1 billion in revenue. (The complete report is available at 2015 Q3 CFO Signals.TM)

The majority of finance chiefs (59%) characterize the current state of the economy as at least “good” in North America, with 55% expecting it to improve in a year. But the U.S. economy makes them uneasy; 60% of respondents assessed the equity markets as overrated. In addition to possible market corrections, CFOs expressed concern about the spillover effects from tumultuous economies abroad, such as China—whose economy only 4% describe as “good,” with just 10% expecting improvement.

Closer to home, expectations for company revenue growth rose from the all-time survey low of 3.1% last quarter to 4.4%, still among the lowest in the survey’s five-year history. Income expectations remained steady at a survey-low of 6.5%. At 5.1%, revenue expectations for the U.S. were up from last quarter’s 3.0%; income expectations climbed slightly from 6.9% to 7.6%.

Their tempered expectations, combined with their general optimism, indicate that CFOs may be working to adjust to the idea of an economy that will grow—but at a slower pace than they’d hoped. Based on the survey, CFOs are carefully weighing their desire to get growing with their need to protect the balance sheet. As a result, here are some of the decisions they are making:

1. Invest in resources—but only the right ones. The economic environment typically favors either growth or cost-cutting, but a significant number of CFOs see the case for either approach. About half said they are biased toward revenue growth, a drop for the second consecutive quarter, while 30% said they see cost-cutting as their primary focus. Capital spending expectations for the U.S. are, at 3.9%, the lowest they have been in a year. It may be that companies cannot invest in growth initiatives without cutting costs elsewhere. For CFOs, who have likely captured as much savings as they can from slashing administrative and operational costs, the challenge may be figuring out how best to allocate resources.

2. Looking for new growth in familiar places. Despite their reputation as risk-avoiders, CFOs understand the need for innovation—but need to be persuaded that it will produce a payback in the not-too-distant future. A slow-growth economy is better suited to incremental—not monumental—innovation. For companies that means finding new applications for existing products or technologies. In the survey, 42% of respondents said they had a bias toward existing products, with just 31% inclined toward new offerings. Similarly, 58% of CFOs said they had a bias toward current geographies, dwarfing the 21% who were partial toward new geographies.

3. Preserving benefits, while shifting more risk onto employees. In the survey, CFOs expressed concern about talent shortages in many different realms, ranging from executive and senior leadership to engineers and sales and marketing professionals. Their desire to recruit—and retain—employees makes it impractical for them to reduce benefits packages. In last quarter’s report, only 25% of U.S. respondents said they expected any change in benefit offerings. But at the same time, nearly all U.S. CFOs (95%) said that risk-shifting would continue to be their dominant strategy for managing healthcare costs. For employees, that typically translates into higher deductibles, increased co-pays or additional surcharges.


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