The Economy

CFOs: 9.3% Jump in Prices Will Wipe Out Real Revenue Growth

The CFO Survey also found that CFO optimism about the U.S. economy fell to its lowest reading in nearly 10 years.

CFOs’ views of the economy and the future financial performance of their own companies worsened in the second quarter, according to results of The CFO Survey released Wednesday. Overall optimism about the U.S. economy fell to its lowest point in nearly 10 years.

Compared with the first quarter, the 320 U.S. finance executives surveyed projected a larger increase in unit cost growth, a smaller increase in employment, stagnant real revenue growth, and a 1% drop in the growth of real gross domestic product (GDP).

“Price pressures have increased, real revenue growth has stalled, and optimism about the overall economy has fallen sharply,” said John Graham, a Fuqua finance professor and the survey’s academic director.

At the macroeconomic level, CFOs on average expected U.S. real GDP to grow 1.5% over the next 12 months, down from an expectation last quarter of 2.5%. 

That projection arrives the same day the U.S. Commerce Department said GDP contracted by 1.6% in the January-March quarter, one-tenth of a percentage point lower than its first estimate.

Price pressures have increased, real revenue growth has stalled, and optimism about the overall economy has fallen sharply. — John Graham, Finance Professor, Duke University Fuqua School of Business

According to CFOs, the average probability of negative GDP growth over the next 12 months is 21%, compared with 12% last quarter.

With some economists proclaiming the U.S. economy may already be in a recession, it’s no surprise the CFO Optimism Index about the U.S. economy continued its year-long decline. On a scale from 0 to 100, optimism fell to 50.7 in the second quarter, compared with 54.8 last quarter and 60.3 two quarters ago. That’s only two-tenths of a percentage point above where CFO optimism was when the COVID-19 pandemic first hit.

The report accompanying the CFO Survey, a joint project of Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta, detailed the muted projections CFOs have of the next 12 months.

At the median, CFOs expected unit costs to grow 10.2% in 2022, up from 8.3% last quarter. They also forecast no growth in inflation-adjusted revenue, compared with 3% real revenue growth in the first quarter. In the meantime, CFOs projected a 9.3% jump in prices in 2022, accompanied by an 8.4% jump in wage costs.

For 2023, CFOs indicated most of their projections would moderate, including growth in the number of people holding jobs at their companies. CFOs expected 4.5% employment growth in 2022 and 3.7% in 2023. They also projected lower revenue growth for next year.

At the European Central Bank’s annual policy forum on Wednesday, Fed Chair Jerome Powell said that “overall the US economy is well-positioned to withstand tighter monetary policy.” But Duke University’s Graham said, “monetary tightening is one of several factors dampening the economic outlook.”

About 60% of The CFO Survey respondents said they did not plan to borrow to fund operations in the next 12 months. Most of those firms said they have enough cash on hand to fund operations during that period.

When asked about future stock market performance, CFOs said the most likely outcome was a 2.4% return for the S&P 500 over the next 12 months. The worst-case scenario was a return of -8.2%, and the best case a return of 8.7%.

The quarterly survey of 320 U.S. financial executives was conducted May 25 to June 10.