According to a recent Deloitte CFO Signals Survey, Chief Financial Officers (CFOs) are virtually unanimous in preparing their finance organizations on a mild recession. Although there is debate over whether a recession has actually occurred, a decline in consumer spending could be what pushes the economy into one.
The surveyed CFOs indicate they are generally satisfied with their organizations’ ability to plan for it. Still, there is room for improvement, and CFOs offered several suggestions, such as implementing digital technologies and AI and improving forecasting. Interestingly, some CFOs cited a need for improvement in speed, agility, transparency, and collaboration—as most likely to help their companies pivot as economic and market conditions change.
Meanwhile, CFOs are taking steps to prepare for a recovery—whenever that occurs—by identifying opportunities for investment, strengthening liquidity and cash management, increasing operational efficiency, and building inventory or production capacity, to name a few.
Some CFOs are even increasing hiring and reviewing compensation to stay competitive in a growth economy. This quarter, CFOs are optimistic, both for improved economic conditions a year ahead and in their own companies’ future financial prospects. Compared to the prior quarter, CFOs also have higher expectations for year-over-year growth (YOY) in earnings, revenue, capital investment, and domestic hiring. These factors may help explain why 40 percent of CFOs say now is a good time to be taking greater risks, a leap from 29 percent last quarter. In addition, just 36 percent of CFOs view U.S. equity markets as overvalued, half the 72 percent of CFOs who considered the markets overvalued in our survey a year ago.
Inflation has declined since the start of the year, partly attributable to lower energy prices. Still, the majority of CFOs don't expect it to fall much further before year-end, pegging it between 4 percent and 6 percent. Some CFOs might view tightness in the labor market and higher wages as an inhibitor to inflation dropping faster. The likelihood for more interest rate hikes this year could also explain the cautious attitude.
One special topic this survey focused on, was the challenges and opportunities CFOs and their finance organizations have in providing their businesses with data and insights for timely decision-making. More than half of CFOs pointed to inadequate technologies/systems, immature capabilities, and lack of experienced talent each as their greatest roadblocks in driving data to insights. The majority of surveyed CFOs have taken actions to address those challenges, such as investing in new systems and automation and upgrading existing systems, implementing talent/organizational changes, and streamlining data structures and evaluating processes and controls.
To improve their companies' decision-making in planning for the remainder of 2023 and 2024, CFOs most frequently suggested implementing digital technologies, artificial intelligence (AI), automation, improving forecasting, scenario planning and consistency in measuring key performance indicators (KPIs). To improve their organizations' ability to drive data to insights, CFOs pointed to investing in new systems & automation/upgrading existing systems and implementing talent/organizational changes.
More than half (52 percent) of CFOs surveyed said their companies do not have a Chief Data Officer (CDO) or equivalent. Of the CFOs whose companies do have a CDO or equivalent, 33 percent say that position sits within the IT function and 10 percent indicated it resides within finance. Additionally, organizations with a CDO or equivalent appear not to be taking full advantage of the resource, as only slightly more than half (56 percent) of CFOs say their finance organization works routinely with the CDO or equivalent in the course of finance's work.
The percentage of CFOs indicating that U.S. equities were neither overvalued nor undervalued remained flat for the second consecutive quarter at 50 percent. The proportion of CFOs saying U.S. equity markets are overvalued increased to 36 percent from last quarter's 30 percent, while the proportion of CFOs considering U.S, equity markets undervalued declined to 14 percent from 20 percent in the prior quarter. Just 16 percent of CFOs see equity financing as less attractive this quarter, down from 25 percent in 4Q22. The percentage of CFOs considering debt financing attractive remained unchanged at 15 percent.
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