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CFO Confidence Index Forecasts for U.S. Business Climate Decline in Q3 and Beyond

What is the Fed's plan for benchmark U.S. interest rates going forward? After the recent Q2 2024 CFO Confidence Index survey results were released, the outlook has become less clear. Early second-quarter data indicated slower-than-expected inflation reduction. Earlier this year, rate-cut expectations and a solid GDP (Gross Domestic Product) report for the end of 2023 had boosted market optimism, but this has waned due to the increasing likelihood that the Fed won't make any changes until the fall.


After a buoyant start to 2024, CFOs (Chief Financial Officers) are now tempering their expectations for the business climate for the rest of this year and into 2025. Their forecast for business conditions dropped from 6.8 out of 10 (on a scale where 1 is Poor and 10 is Excellent) in the Q1 survey to 6.4 this quarter.


Uncertainty surrounding the Fed, the upcoming presidential election, and ongoing geopolitical instability was the most frequently cited factor by CFOs for their slightly more negative 12-month outlook on business conditions.


One surveyed CFO noted the difficulty for Fed officials in lowering interest rates without stalling growth. "It seems likely that we will have sticky inflation with interest rates maintaining current levels or, alternatively, at least a mild recession," they said, reflecting the concerns of many CFOs who fear deteriorating conditions in the coming months.


The Q2 data also reveals a significant increase in the percentage of CFOs expecting worse conditions 12 months from now compared to today: 31 percent versus 19 percent in February. This marks the second-largest single-quarter fluctuation since this index began in October 2020.


The percentage of CFOs expecting worsening conditions is significantly higher than the 22 percent of CEOs (Chief Executive Officers) and 15 percent of CHROs (Chief Human Resource Officers) who forecasted similar deterioration in the coming year, according to recent polls by Chief Executive and StrategicCHRO360.


One CFO cited economic and market volatility, coupled with it being an election year, as reasons for his revised outlook. "Inflation is still high, and it's hard to tell what will come of [who is in] for the next four years," they explained.


Delving into the numbers, data from the Q2 survey shows a decline in the number of CFOs expecting growth in the year ahead. Seventy-four percent forecast increases in revenue (down from 80 percent in Q1), and 64 percent anticipate increased profitability (down from 74 percent in Q1). Meanwhile, 22 percent expect profits to decline (up from 14 percent in Q1), and 18 percent foresee a slide in revenue growth (up from 14 percent in Q1).


A similar trend is observed in capital expenditure forecasts: in May, 36 percent of CFOs indicated plans to increase capex in the coming year, down from 45 percent in February. Meanwhile, 19 percent reported they are reducing investments for the time being. "Projects are beginning to push out due to the cost of capital," one surveyed CFO noted.


In the Q1 CFO Confidence Index survey conducted in February, 58 percent of CFOs planned to add to their company’s headcount, marking the highest level since May 2022. However, this quarter, that figure has dropped by 10 percentage points, with only 48 percent of surveyed CFOs indicating their company intends to increase hiring over the next 12 months.


The Q2 survey revealed a more cautious approach to balance sheet management. Only 18 percent of CFOs plan to take on more leverage in the next 12 months, down from 26 percent in the first quarter. Additionally, fewer CFOs anticipate increases in their cash positions during this period (53 percent, down three percentage points from last quarter), although they still represent the majority of those polled.


If you are a business owner or CEO within the San Francisco Bay Area or Silicon Valley, in need of an experienced fractional or outsourced CFO to help your company control costs, increase profit margins, improve cash flow as well as identify strategic growth opportunities, our highly skilled outsourced CFO services provide direct access to high-quality expertise in a cost-effective manner.

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