According to StrategicCFO360’s Q1 CFO Confidence Index reading shows optimism in business conditions for the year ahead is up 12 percent since their 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 twelve months ago.
That rise in optimism is similar to rising confidence by CEOs and directors. These confidence of these groups of future business conditions both rose seven percent between December 2022 and January 2023. 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.
Of the CFOs polled, the majority (68 percent), rate current business conditions five percent better than last quarter, from 5.8 to 6.1 in February. This is the first uptick in their rating of current conditions since May of 2022.
“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 optimism 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.
As 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.
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 2022—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, 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 Q4 22. The proportion who projects that demand will be higher one year from today jumped even further, from 46 percent in Q4 22 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.
The proportion of CFOs expecting an increase in profits and revenues is up 4 and 13 percent, respectively, after double-digit drops last quarter. 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 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.
The key takeaway? “Conserve cash,” recommends Basil Marais, SVP at Applied Software Technology.
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