Deloitte 'CFO Signals™' Survey: Sharp Decline in Expectations for China's Economy Creates Broad-Based Concern

Own-company earnings growth, revenue growth and capital spending expectations at or near survey lows

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Sep 29, 2015, 07:06 ET

NEW YORK, Sept. 29, 2015 /PRNewswire/ -- Surveyed chief financial officers (CFOs) are concerned about the impact of the slowing Chinese economy on economies around the world as well as prospects for their own companies, according to Deloitte's third quarter (Q3) "CFO Signals™" survey, which tracks the thinking and actions of more than 100 CFOs from large North American companies. After weakening gradually over the past few quarters, only 4 percent of CFOs now regard the Chinese economy as good compared with 23 percent in Q2. While 59 percent of CFOs remain optimistic about the North American economy, just 5 percent describe the European economy as good, which is unchanged from Q2.

CFO Signals What North America's top finance executivesare thinking and doing

Concerns continued when CFOs were asked about own-company expectations, with the survey's key performance metrics all at or near survey lows. Capital spending, revenue growth and domestic hiring expectations are near survey lows at 4.3* percent, 4.4* percent and 1.4* percent, respectively, while earnings growth expectations matched last quarter's survey-low at 6.5* percent. Additionally, while this survey recorded an 11^th straight quarter of positive net optimism at +14.2 percent, it is at the lowest level in almost three years, as is the percentage of CFOs expressing rising optimism (34 percent). A majority of CFOs, 60 percent, continue to say U.S. equity markets are overvalued. Notably, responses from CFOs were collected over the two-week period before U.S. equity markets declined sharply on Aug. 24, 2015.

"While CFOs are generally an optimistic group, they are understandably taking a more cautious view of the global economy and their own companies than in previous quarters," said Sanford Cockrell III, national managing partner of the U.S. CFO Program, Deloitte LLP. "With so many sources of volatility and uncertainty, highlighted by challenges in China, it is difficult for most companies to aggressively pursue growth — and this is reflected in the conservative investment and hiring expectations expressed by CFOs this quarter."

Surveyed CFOs also indicated the top internal and external risks to their organizations. Acquiring and retaining key talent was the number one internal risk cited, with the number of CFOs citing this risk at the highest level in the history of the survey. CFOs expect shortages of talent over the next five years, citing IT/technology, engineering and sales and marketing roles as the top three areas, and 80 percent of CFOs say they have planned for generational talent trends. Execution against plans was the No. 2 internal risk, followed by cyber security. The top three external risks cited are new/burdensome federal regulations, oil/commodity prices and interest rate increases or decreases, respectively.

In 2Q 2013 and again this quarter, CFOs were also asked to cite top board concerns. The top three external risks have remained the same over the past two years: intensifying competition, threat of U.S. slowdown/recession and regulatory changes. Internally, however, the threat of cyber breach has risen dramatically, from one of the least cited concerns in 2Q 2013 to the No. 2 concern of boards now. Topping the list is poor execution of strategy, which was also the No. 1 concern of boards in 2013; wrong/suboptimal strategy replaced loss and succession of executives as the No. 3 concern of boards.

"Even before equities markets got pummeled in late August, CFOs were voicing escalating concerns about China and about unrelenting volatility in the broader business environment," said Greg Dickinson, director, Deloitte LLP, who leads the North American CFO Signals survey. "The last few quarters' survey findings seem to show that volatility is taking a toll, with rising conservatism in CFOs' sentiment, expectations and business focus."

Additional findings from the Deloitte Q3 "CFO Signals" survey include:

Talent strategies: CFOs plan to secure talent through a combination of recruiting new/young talent, reworking compensation/benefits approaches, using professional development as a retention tool and strengthening their reputation as a great place to work.
Tax concerns: Despite relatively low concerns on the impacts of tax uncertainty on growth efforts, CFOs voiced concerns about many current and evolving aspects of the current U.S. tax code, including very high concerns about the potential changes to the taxation on foreign earnings and significant concerns about the future of "tax extenders" (especially around bonus depreciation) and taxation/depreciation related to investments.

To download a copy of the survey for detailed findings by industry, country and topic; longitudinal trends; and demographic and survey information, please visit: http://www.deloitte.com/us/cfosignals2015Q3.

About The Deloitte CFO Survey
The Deloitte CFO Signals™ survey for the third quarter of 2015 was conducted during the two-week period ended Aug. 21. Seventy-one percent of respondents were from public companies, and 84 percent were from companies with more than $1billion in annual revenue.

Each quarter, CFO Signals tracks the thinking and actions of CFOs representing many of North America's largest and most influential organizations. This report summarizes CFOs' opinions in four areas: business environment, company priorities and expectations, finance priorities and CFOs' personal priorities.

For more information about Deloitte's CFO Signals, or to inquire about participating in the survey, please contact [email protected].

About Deloitte's CFO Program
The CFO Program brings together a multidisciplinary team of Deloitte leaders and subject matter specialists to help CFOs stay ahead in the face of growing challenges and demands. The program harnesses our organization's broad capabilities to deliver forward thinking and fresh insights for every stage of a CFO's career—helping CFOs manage the complexities of their roles, tackle their organization's most compelling challenges, and adapt to strategic shifts in the market. For more information about Deloitte's CFO Program, please contact [email protected] or visit www.deloitte.com/us/thecfoprogram.

*All numbers with an asterisk are averages that have been adjusted to eliminate the effects of stark outliers.

As used in this document, "Deloitte" means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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SOURCE Deloitte