StrategicCFO360’s Q1 CFO Confidence Index reading shows optimism in business conditions 12 months from now is up 12 percent since our Q4 poll in October, from 5.5 to 6.1, as measured on a 10-point scale where 10 is Excellent and 1 is Poor. This is the first gain in confidence measured since one year prior.
That climb is in line with CEOs and directors, whose forecasts for future business conditions both rose 7 percent between December and January. Like CFOs, they attribute their increase in optimism to projections of a mild recession with a resolution before year-end, easing inflation, healthy employment fueling demand and diminishing supply chain issues, even though they are facing strong headwinds currently.
Ninety-two CFOs polled January 18-25 rate current business conditions 5 percent better than last quarter, from 5.8 to 6.1 this month. This is the first uptick in their rating of current conditions since May of last year.
“Supply chain disruptions have seen improvement, travel is back on the rise, consumer sentiment continues to be strong and liquidity for most companies has been strong as the pandemic forced lower capital expenditures or large outlays,” says Vandana Mathur Kapur, chief financial officer at The Indy Chamber.
Despite the increases in the overall ratings of both future and current business conditions, 36 percent of CFOs project unchanged business conditions in their own ratings and are cautious about what the future holds.
The CFO of a university notes, “There are still supply chain issues affecting the ability of the economy to take off just yet.” She rates current conditions as a 6 and expects them to remain the same a year from now, explaining, “Inflation is hitting every industry. Low unemployment continues to affect our ability to hire/retain.”
The proportion of CFOs forecasting business conditions to worsen has significantly dropped, from 45 percent in the last quarter of 2022 to only 32 percent now. These CFOs share concerns about uncertainty and instability both economically and politically.
“There is so much uncertainty in the marketplace right now, we are not sure what will happen this year,” says Tracey Isacco, president and former director of finance at L&E Research. She expects conditions to deteriorate from a 6 to a 5 one year down the line, explaining, “With all the cuts going on, it has to affect companies’ budgets who use our services eventually.”
The proportion of CFOs projecting that conditions will improve dropped slightly from last quarter to 32 percent. It is now equal to the proportion expecting a downturn.
“Continued mitigation of supply chain disruption issues, more clarity on timing and extent of any global recession, less impact of Covid-19,” says the CFO of a mid-size industrial manufacturer to explain his improving rating of business conditions in the future, up to a 7 from 6 currently.
CEOs and board members show similar signs of optimism, and their ratings are up on both measures since December—along with the proportions of those who expect improving conditions, which now stand at 43 and 45 percent, respectively, much higher than that of CFOs.
“First quarter to the first half of 2023 will be extremely fluid with continued economic uncertainty,” says Rob Bochicchio, president at Marketsmith, a small marketing company, echoing the concerns of many CFOs. He believes business conditions will only improve from here. “The shift in the market is affecting consumer purchasing power, which could level out,” he says, expecting conditions in January 2024 to be 9 out of 10.
Consumer spending is also a hot topic with CFOs this month. Many praise that continued demand and healthy unemployment signal a strong underlying economy, despite fluctuations in the market. On the other hand, many caution that as inflation penetrates deeper into everyday purchases and a recession looms, consumers will pull back their spending—especially those who have been laid off.
In this quarter’s poll, the proportion of CFOs who say that demand today is higher than demand in January of 2022 increased to 48 percent up from 41 percent in 4Q22. The proportion who projects that demand will be higher one year from today jumped even further, from 46 percent in 4Q22 to 55 percent in Q1 of this year. This is the highest proportion of respondents who expect demand to improve compared to directors and CEOs.
Planning for the Year Ahead
The proportion of CFOs expecting an increase in profits and revenues is on the mend after double-digit drops last quarter, up 4 and 13 percent, respectively. Now, 48 percent of CFOs expect profits to climb over the coming 12 months while 69 percent expect revenues to grow.
“We are engaging in some new activities to drive growth and revenue in this downturn,” says Michelle Schwalbach, CFO at Growth Acceleration Partners, a tech company. “I believe these initiatives will result in some new revenue streams that will continue to deliver, especially as the market improves over the next couple of years,” she adds, predicting conditions will improve from a 6 to an 8 by this time next year.
A higher proportion of CFOs plans to increase their capital expenditures over the next 12 months, up 5 percent to 36 percent now, compared to 34 percent in 4Q22. The proportion of board members and CEOs who said the same both dropped in January, to 26 and 44 percent, respectively.
More CFOs are also planning to increase headcounts this quarter compared to last, at 49 percent who say hiring will increase over the next 12 months, a +12 percent change since 4Q22. The proportion of CEOs who said the same dropped in January, but both proportions are similar, with 51 percent of CEOs who said hiring will increase.
Forty-four percent of CFOs plan to increase their cash over the coming 12 months, up 12 percent since last quarter, while 21 percent of CFOs plan to increase their debt, down 10 percent since last quarter.
“Conserve cash,” recommends Basil Marais, SVP at Applied Software Technology.
About the CFO Confidence Index
The CFO Confidence Index is a recurring flash poll of CFOs and finance chiefs on their perspective of the economy and how policies and current events are affecting their companies and strategies. Throughout the year, StrategicCFO360 surveys hundreds of CFOs across America, at organizations of all types and sizes, to compile our CFO Confidence Index data. The Index tracks confidence in current and future business environments, as well as their forecast for their company’s revenue, profit, capex and cash/debt ratio for the year ahead. Learn more at StrategicCFO360.com/CFO-Confidence-Index