CFO Business Sentiment Index - December 2023

As interest rate-hike fears retreated, executive confidence inched up during the most recent three-month period, according to the latest CFO Business Sentiment Index.

CFOs gained a quantum of solace about the national economy during the quarter, with 44% reporting a “positive” outlook in December, up from 39% in November, and 36% in September. The share of CFOs who see an economic pullback seesawed — edging down to 9.4% in December from 9.6% in the month prior, but still above the 9.1% who were downbeat in October. The optimism uptick did not carry through to their own verticals, however, with only 49% forecasting growth in their industry, a slide from 73% in October and 62% in November. One-third of respondents see no change, up from 26% last month and from 9% in October.

Global geopolitical issues continue to top the list of threats to the U.S. economy (19% share), although domestic politics (17%) now outweighs inflation (10%) and China (7%) in the next tier of traps.

The ability to attract and retain employees continues to be a challenge according to 12% of executives, up from 8% last month and 10% in October, followed closely by supply chain concerns, which rose from 4% in November to 8% this month; and military conflicts (7%, unchanged from November). Government over-regulation and terrorist threats weighed in at 6% and 4%, respectively, little changed over the quarter. Anxiety about federal tax hikes inched down during the past three months to about 3% in December. Energy costs, environmental, healthcare and pandemic-related issues rounded out the list.

The prospect of softening interest rates helped boost real estate demand as 18% of executives say they’re seeking new space (up from 9% last month, but still down from 27% in October), and 25% plan to downsize their real estate holdings (a slide from 40% in November and down from 36% in October). A majority (57%) of CFOs say they’ll rebalance their portfolio (up 21 percentage points during the quarter).

?Inventory appetite jumped during the quarter, as 42% of respondents say they will expand on-hand levels, up from zero in October and 13% last month. Fewer respondents (10%) plan trims, down from 30% at the beginning of the quarter. About 48% of executives plan no changes, down from 70% at the beginning of the quarter.

CFOs and others remain tentative about M&As, as 42%, — down from half last month and 46% in October — are looking for acquisitions or combinations, while only 10%, unchanged from last month but down by almost half from October, see a drop in M&A activity.

Hiring plans edged steadily lower this quarter, with only 26% of executives planning to expand their headcount as of December, down from 36% in October and 32% in November. Another 32% plan to trim their workforce, unchanged from last month but up from 27% in October. And slightly more CFOs (81%) are embracing artificial intelligence, up from 77% last month but down a hair from 82% in October.