CFOs gained confidence in the U.S. economy following the resolution of the debt ceiling battle in Congress. Still, overall in the second quarter, positive sentiment was about the same as in the first quarter.
The CFO survey by Duke University and the Federal Reserve Banks of Richmond and Atlanta, released Wednesday, found that on a scale of 1 to 100, CFOs had a confidence level in the economy of 54.8, similar to last quarter. Economic confidence rebounded four points from a year ago, but was still 14 points below the June 2021 (two years ago) reading.
The survey results were not all doom and gloom. CFO respondents assigned a higher probability to economic contraction, But on average, they forecast gross domestic product growth of 1%, down from 1.4% last quarter but still positive.
In addition, CFOs' confidence in their own companies remained stable, measured by the Duke/Fed survey at 67, nearly identical to last year’s figure and the first-quarter reading.
In addition, less than a third of small and a quarter of large businesses said the cost of capital or lack of access to it has constrained investments so far this year.
Labor, Monetary Policy Challenges
With this year's halfway point about to be crossed, the top concerns of CFOs shifted some. But issues finding and keeping talent were still front of mind. With the U.S. labor market showing no signs of slackening, labor quality and availability were still the top worry of finance chiefs, at 17%.
Growing uncertainty about the Federal Reserve's next interest-rate hike and the negative effects of higher interest rates pushed monetary policy into the second most-mentioned concern, cited by 12% of respondents.
Mentions of cost pressures and inflation, which totaled 10% of responses this quarter, dropped from the second spot to the fourth on the list of CFO's most pressing concerns.
Growth Expectations and Spending
While CFOs expect revenue growth in 2023, they lowered their revenue forecasts, according to the survey. CFOs expect to grow revenue by nearly 7% on average in 2024 from this year, but they pulled back on average growth expectations for 2023, to 3% from 7.2%. Forecasts of unit costs increased nearly 1% from the first quarter, as did employment. But CFOs cut the expected increase in wage bills for 2023 by about half a percentage point.
Hoping for new revenue streams, many CFOs aren’t shying away from spending money. Nearly half (45%) of CFOs said spending increased somewhat or significantly in the last three months, despite cost optimization being of great concern to finance chiefs six months ago. Nearly a third said they made no changes in their spending compared with the first quarter, with a quarter indicating spending decreased.
Access to Capital
Despite cheap capital's evaporation due to rising interest rates, few CFOs, regardless of business size, said it has significantly impacted their spending and investing plans so far.
Eighty percent of large and 69% of small businesses reported that access to capital has not hindered any business initiatives since the start of 2023. Between now and the end of 2023, however, more firms (38% of small companies, 24% of large) expect lower investment and spending in the remainder of the year due to financing conditions.
The reasons why these businesses have not been impacted yet vary. Nearly half of small and large businesses alike (49% and 47%, respectively) said that since the start of 2023 they have had enough cash to do what they needed. Over a third of small and large businesses (38% and 35%, respectively) said they did not need to expand their businesses, hence a lack of need for scarce, expensive capital.
Notably, CFOs of small and large businesses had different perspectives on adding debt. Over a third (35%) of small business CFOs said they did not finance spending with debt. Less than a fifth (17%) of large business CFOs said the same.