CFO Survey: Economic Pessimism Keeps Growing

The market may still have its big rally days from time to time. But finance chiefs responding to the just-released third-quarter Deloitte “CFO Signals” survey have turned decidedly negative, with executives who are pessimistic about their own companies’ prospects now outnumbering the optimists. Their answers also indicate that they are also substantially cutting back growth and investment plans for year ahead because of global economic concerns.

The survey, now in its sixth quarter, showed that 29% of the 91 CFOs responding have a positive outlook, down from 40% in Q2 and 60% in the survey covering Q1. The percentage of those expressing less optimism shot up to 53% from 32%.

Interestingly, though, 52% answered one question by saying they would be willing to personally contribute to government success — in the vein of Warren Buffett’s proposals — by accepting a rise in their personal income tax rate as a way of reducing the deficit on a comprehensive basis.

“On one hand, it’s a bit surprising that about half of the CFOs surveyed are willing to go along with an increase to their personal income tax rate since they are known for being fiscal conservatives,” Greg Dickinson who leads the Deloitte CFO Signals survey, said in a press release explaining the survey results. “Our research has already shown that they very much favor spending cuts over tax increases. “But on the other hand, we also know that CFOs are pragmatic problem solvers who are used to finding comprehensive solutions.”

The CFO Signals survey, conducted over two weekend ending Aug. 26, focused on executives of companies having more than $1 billion in annual sales, 75% of them public. Each quarter the survey covers five areas: finance careers, organization, and company, industry and overall economic issues.

(A survey taken mostly among middle-market CFOs by the Tatum corporate services organization found a similar negative turn in views about business conditions earlier this week.)

The CFOs questioned by Deloitte tempered their expectations for year-over-year revenue growth, seeing on average 6.8%, down from 7.1% in the prior quarter’s survey. The average earnings growth they foresaw was 9.3% in the latest quarter, down from 14% seen in Q2. They envisioned domestic hiring rises as averaging 1.2% this quarter, down from 2% in Q2. But capital spending still was expected to grow next year, by an average 7.9%, although that is down from 10.7%.

Government fixes weren’t seen as a bringer of change in the latest survey; less than a quarter of respondents said they would boost capital spending and hiring to reflect the Federal Reserve’s pledge to keep interest rates low through 2013. But 92% said they believed that government fiscal soundness is necessary for businesses to have success.

Some other results:

• 52% say that economic turmoil is hurting their financial projections.
• 68% worry that their strategies may not be defined enough for current conditions.
• 37% fear their organizations will struggle to execute on chosen strategies.
• 56% expect a dominant focus on growth to be domestic.

“CFO sentiment is driven by demand,” said Sanford Cockrell III, national managing partner, CFO Program, Deloitte LLP. “The deepening impact of the European debt crises combined with stagnant employment, continued housing issues and volatile financial markets at home do not bode well for consumer demand anywhere. Little wonder some CFOs are stepping back — even retreating — from their previous growth projections.”