U.S. Confidence in Economy Starts to Rebound

In the second quarter of 2020, U.S. Chief Financial Officers (CFOs) said they were more optimistic about the financial prospects of their companies and the direction of the U.S. economy compared with the first quarter, according to a recent a CFO Survey.


The CFO Survey, a collaboration of Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta, asked finance executives to rate their optimism for the financial prospects of their own firms on a scale of 0 to 100. The average optimism rating was 70, an improvement from the first quarter, which was 60.


When finance executives were asked to rate their optimism about the overall U.S. economy using the same scale, the average rating was 60, an improvement from 51 in the first quarter.


Still, CFOs “continued to express concerns around the shape and strength of the recovery for their firms, their industries, and their customers,” said Brent Meyer, policy adviser and economist at the Federal Reserve Bank of Atlanta.


CFOs said their most pressing concerns were sales revenue and customers’ demand for their products. They also expected their companies’ revenues to decline 2 percent this year, but are predicting a 7 percent revenue growth in 2021.

Many of the CFOs surveyed said they expected their firms’ operating income, employment, and total compensation to bounce back in 2021 after shrinking in 2020. The pessimistic outlook for the current year was corroborated by respondents’ low expectations for gross domestic product growth, with almost 40 percent of firms expecting U.S. GDP growth to be negative for calendar year 2020. U.S. GDP fell at a 5 percent annual rate in the first quarter and a nearly 33 percent annualized in the second.


About one-third of the CFOs surveyed said they had cut headcount since March. Respondent firms reduced their workforces an average of nearly 6 percent. Most attributed the cuts to reduced demand due to the COVID-19 pandemic.

“Although some of these jobs will return by the end of the year, CFOs on average expect year-end 2020 employment to be 5 percent lower than it was at the beginning of the year,” said John Graham, a Fuqua finance professor. “By year-end 2021, employment is still expected to remain below pre-COVID levels.”


The survey found that about half of the respondent’s firms applied for new credit in the past six months. Thirty-three percent of respondents that applied for new credit said it was more difficult to access, while 11 percent said it was less difficult. The remaining participants said there was no change in their ability to obtain credit. Almost all of the firms that applied for credit received a loan amount at or near what they requested.


Almost all responding firms with less than 500 employees applied for funding from the U.S. Small Business Administration’s Paycheck Protection Program (PPP).

“PPP funding has been an important part of the survival mechanism that firms have employed,” said Sonya Ravindranath Waddell, an economist at the Federal Reserve Bank of Richmond. “The fact that almost all of the firms that reported taking PPP funding anticipate full forgiveness of the loan is one positive indicator for employment as policymakers try to anticipate the trajectory of the recovery.”


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