- A measure of net optimism was negative for the first time since the survey began in 2010.
- CFOs are becoming wary of taking on increased risk going forward, but still consider their businesses as offensive rather than defensive, the study found.
- Read more on Markets Insider .
A measure of CFO optimism just turned negative for the first time on record as trade and recession fears linger
A new study from Deloitte shows that sentiment amongst chief financial officers in North America has dropped to multiyear lows.
Chief financial officers are growing increasingly worried about trade and the global economy. And it's starting to weigh on their growth expectations for the companies they manage, according to a new survey from Deloitte.
When asked how they felt about their companies' financial prospects compared to three months ago, 31% of CFOs expressed declining optimism, while 26% expressed rising optimism. That put the net optimism index at -5, its first-ever negative reading.
The researchers behind the report note that CFO concerns and uncertainty intensified over the past three months.
"People were really negative this quarter," Sandy Cockrell, the leader of the global CFO program at Deloitte, told Markets Insider in an interview. "You're sitting there trying to prepare your 2020 budget and it's almost impossible because you really don't quite know what to be putting in in terms of input prices."
What surprised Cockrell was that 68% of CFOs said that the North American economy is currently good a new survey low. To paint an even grimmer picture, only 15% said they expect the economy to be better a year from now. Those numbers are "eye poppers," he said.
The chart below shows this sentiment shift in action:
Since then, more sections of the yield curve have inverted, furthering recession concerns. Meanwhile, business sentiment has dropped in recent months, while US companies said they slashed 10,000 jobs in August because of the trade war.
In addition, there's the threat of new tariffs and worry around a no-deal Brexit. This has left CFOs more concerned about the impact of government actions on global economic growth. Since the end of 2018, CFOs have identified factors like these as the dominant constraint on company performance.
The overall decline in optimism permeated the rest of the report. Earnings expectations slid to a survey low of 5.6%, and capital spending and hiring also declined, hitting three-year lows. Manufacturing was hit the hardest in these areas, leading declines in revenue, earnings, capital spending, hiring, and wage growth.
Industry specifics
Still, optimism did vary greatly by industry, the report showed. Those who work for manufacturing companies are the least optimistic, with an optimism rating of -31 in the third quarter. In tech, optimism actually increased by 53 points.
Elsewhere, retail and energy companies were only mildly positive. While the threat of tariffs has hit manufacturing particularly hard, companies across the board have spoken out about the negative impact of the trade war .
CFOs are becoming more wary of taking on risk, and that showed in the reports assessment of markets. A majority of CFOs say that equities are overvalued, and the attractiveness of equity declined to 32% from 40% in the second quarter.
On the flip side, debt markets are looking increasingly attractive to CFOs. More than 85% said that they found debt financing attractive. This was in step with the low appetite for risk taking. Only 40% of CFOs said now is a good time to be taking greater risk, down from 42% last quarter.
Despite lower optimism about growth going forward, CFOs say that they're on the offensive instead of playing defense just yet. This quarter, focus on growing revenue over reducing costs was 51%, up from the last survey.
The survey went out to CFOs across North America between August 5-16. Most respondents are from companies whose annual revenue exceeds $1 billion. Nearly three-quarters work at public companies, and the rest are at private companies. Most work in either manufacturing or financial services.
See Also:
- Traders are overlooking a warning sign that flashed before the last financial crisis. Here's why one market expert says that means another recession is imminent.
- 'The bond market is screaming at us': A Wall Street expert says investors are focused on the wrong recession signal and warns a meltdown may come sooner than expected
- Nobel laureate Robert Shiller breaks down the psychological forces that will determine the severity of the next recession and says Great Depression parallels are still alive and well
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