By Rob Starr, Big4.com Content Manager
The first quarter of 2016 has chief financial officers’ (CFOs) outlooks dipping due to poor global economic performance and equity market valuations, according to The Deloitte CFO Signals™ survey for that time frame. In fact, expectations for revenue, earnings, capital spending and domestic hiring, metrics that were tracked for 24 consecutive quarters, all declined so they are at or near survey lows. CFOs were very concerned about the interactions between economic volatility, financial markets and consumer confidence according to Greg Dickinson, Director, North American CFO Survey, Deloitte LLP. Dickinson supplied Big4.com with an overview of the survey findings via email recently.
Why are CFO’s expectations so low for Q1 2016?
I think CFOs were reacting, at least in part, to a variety of macroeconomic and financial market events. Leading up to the survey period (Feb 8-19), China’s 2015 growth rate had come in at its lowest level in 25 years; the Fed had raised interest rates for the first time in nearly a decade; oil prices had dipped below $30/bbl for the first time since of 2003; and the S&P 500 had fallen almost 8% between 4Q15 and 1Q16 survey (it was at just 1865 at midpoint, now rebounded pretty strongly).
How do factors like economic volatility, the financial markets and consumer confidence play off each other?
CFOs expressed concern that global economic struggles and volatility might hurt expectations
for longer-term business performance – and that this might translate into tightened bank lending, lower equity valuations, and a decline in consumers’ willingness to spend.
What trends are developing?
CFOs expressed conservatism in their companies’ plans going forward. Their bias toward current geographies over new ones very high (65% vs. 17%…61% vs. 23% 4Q15). Bias toward current offerings over new ones is near survey high (42% vs. 35% …38% vs. 33%). Probably also not surprising that, when we asked CFOs this quarter about their expected personal contributions for 2016, they talked about cost controls and helping their companies stay focused and profitable in a shifting business environment.
What risks were cited?
This quarter CFOs expressed growing concerns about the interplay of economic volatility, financial markets, and consumer confidence. Global economic performance – slow global growth, recession, and volatility – was far and away the top concern. There were also stronger-than-usual concerns about capital market liquidity and stability (likely fueled by the pummeling of the stock markets) and the possibility of new/burdensome regulations (which is also a perennial top concern).
What’s in the future?
Two major factors going forward: (1) Growing concerns about global growth and worries that world may be overly reliant on the North American economy, and especially on consumer demand in the US. (2) Impact of US elections on economies and markets. During the 2012 election cycle, we saw CFO sentiment plummet to levels we have not seen since. While this happened mostly in the 3rd and 4th quarters in 2012, this election cycle seems to have started earlier, and I think we are already seeing some of the election impacts this quarter.