The tumultuous presidential election and fallout from the Brexit vote are serious concerns for U.S. CFOs in the next 12 months, even as revenue growth and capital spending expectations rose slightly from the second quarter, according to a recent survey by Deloitte.
The third-quarter CFO Signals survey reveals 87% of the 122 U.S. CFOs responding believe the economic future of their companies depends, at least somewhat, on the outcome of the upcoming presidential election. Seventeen percent of finance chiefs say that dependence is “strong” or “significant.”
“This quarter’s findings suggest all eyes are on the U.S. elections, with the vast majority of CFOs expecting the outcome to impact their company’s future performance,” said Sanford Cockrell III, a national managing partner at Deloitte.
The survey tracks four business outlook metrics: CFO expectations for growth in revenue, earnings, capital spending, and domestic hiring. While year-over-year revenue growth expectations rose to 4.2% from last quarter’s 4.0%, the metric is still among the lowest in the survey’s 26-consecutive-quarter history. Earnings growth projections also fell, to 6% from 7.7% in the second quarter.
In contrast, expectations for growth in capital spending rose slightly to 5.6% in the third quarter, and domestic hiring growth expectations rose to 2.3%, double the second quarter’s reading.
Despite plans for investment, CFOs are wary of negative macroeconomic trends and “potential events that could trigger a rapid decline in global business conditions,” according to Greg Dickinson, a managing director at Deloitte. The U.S. election/political uncertainty was the third most-worrisome external risk CFOs cited.
Overall, finance chiefs appear cautious about the next 12 months. Only 35% of the surveyed CFOs express rising optimism about their company’s prospects, a sharp decrease from 49% in the second quarter. And only 46% of CFOs describe the North American economy as good or very good, well below the 55% in the fourth quarter of 2015.
Globally, fallout from the United Kingdom’s Brexit vote and perceived economic slowdowns in Europe and China are also affecting sentiment. Sixty five percent of CFOs responding to the Deloitte survey claim significant exposure to the U.K., and 42% say their companies sell into the U.K. from North American or Europe. Surprisingly, however, very few have changed course as a result of Brexit — for now.
“What CFOs report about their companies’ exposure to the effects of Brexit are in line with what we are seeing from other reports — a minimal direct impact for many U.S. companies, with the more significant exposure and risk limited to companies that have U.K. facilities or significant exports to the U.K. and E.U.,” said Dr. Patricia Buckley, a managing director at Deloitte Services.
“A slowdown in growth of these markets could potentially pose an issue for these companies down the line,” she added.
Out of the 122 CFOs surveyed for the Deloitte CFO Signals survey, 72% are from public companies, and 80% are from companies with more than $1 billion in annual revenue. The survey was conducted in early August.