CFO Business Sentiment Index - August 2023

The downgrade in U.S. debt did not dent executive confidence about the U.S. economy, according to the latest CFO Business Sentiment Index. No respondents see a national economic slowdown, compared to 9% last month, while nearly two-thirds were upbeat about economic growth, a jump from 36% in the July report. Still, one-third were “uncertain” this time around, up from only 9% last month. CFOs and others remain upbeat about their own industries, with 83% (compared to 64% last month) forecasting positive growth. No one was downbeat about their vertical, an improvement from the 9% negative in the July report.

Despite their optimism, executives appear to be wary of a possible meltdown in China’s economy, and the global ripple effect that could follow. About 20% cited China and geopolitical issues as the top threat to the U.S. economy — with concerns about polarizing political divisions accounting for nearly the same share. Inflation and banking snared the #3 worry-spot at 14%, displacing employee acquisition and retention woes, which slipped to fourth place with a 12% share. The Biden administration’s war on fossil fuels and embrace of union activity probably contributed to fears of government overregulation, which was cited as a threat by 10% of respondents. Supply chain constraints, environmental activism, energy and healthcare costs made up the bulk of the balance. And after lying dormant for some time, pandemic-related concerns made a weak comeback, with about 2% of executives citing that issue as a possible economic threat.

Work-from-home and other remote arrangements continue to overhang CFOs’ appetite for real estate, with 50% planning to rebalance their portfolios (although that share was down from 73% in July), while those looking to trim space edged up to 30%, compared to 27% in the last period. Still, 20% of CFOs plan to expand their holdings, up from none in the prior two-month period.

Inventory planning appears to have shifted this month, as 40% of execs plan to draw down supplies, compared to one-third last month. Another 40% are staying the course, up from one-third in July. But a caution signal is flashing, with only 20% planning to boost inventory levels, slipping down from one-third in the prior period.

Stubbornly high interest rates may be prompting M&A hesitancy, as only 55% of executives see more activity, down from 64% last month. Another 45% have no M&As plans, up from one-third who said that in July.

Employment demand continued to rise in August, as 50% of respondents plan to expand hiring, a jump from 27% last month. But 30% plan to trim their workforce, up from 18% in July.