Executive Confidence Seesaws During First Quarter

Stubborn inflation and reduced expectations of an interest rate reduction-took a limited toll on executive confidence, according to the latest CFO Business Sentiment Index.?

CFOs’ confidence in the national economy seesawed during the quarter. There was a strong start, with 80% projecting “positive” growth in January, but February saw a retreat to only 56%. March brought relief, however, as CFO confidence clawed back almost, but not all of the gains, ending the month with the “upbeat” share totaling 75% of respondents. No executives saw signs of an economic pullback during the quarter, although one-quarter of respondents see a “flat” economy.?

Those views spilled over to their own verticals, with 75% seeing growth in their industry, although that was down from 100% in January. The balance of CFOs were split between “flat” and “uncertain” over their industry’s growth prospects.

Global geopolitical issues continue to top the list of threats to the U.S. economy (17% share), as domestic politics (17%) continued to outweigh concerns over inflation (14%) and China (6%).

Attracting and retaining employees is more of a challenge, say 17% of executives, followed by worries about government over-regulation (11%). Tax-hike fears are a focus of 6% of CFOs, while concerns over supply chains and military conflicts receded, with only 3% of CFOs worried about each category. Energy costs, environmental, and healthcare issues rounded out the list.

Uncertainty about interest rates muted real estate demand, as 12% of executives say they’re seeking new space, down from 20% at the end of January. And reduced valuation concerns could be why fewer CFOs are looking to dispose of real estate (13% at the end of March, down from 20% at the end of January). 75% of CFOs say they’ll rebalance their portfolio, up from 60% at the end of January.

Only 11% of CFOs plan to increase inventory levels, a sharp drop from the 60% who said that in January. Similarly, 56% plan to trim inventory levels, a jump from 20% in January. Some 33% plan no change, up from 20% at the beginning of the quarter.?

Executive appetite for M&As jumped as 75% of respondents are on the prowl for acquisitions or combinations, up from 50% in January. At the end of the first quarter, no one sees a drop in M&A activity, compared to 17% of naysayers in January. One-quarter see no change in the pace of M&As, compared to 33% who said that in January.

Employee separation plans jumped during the quarter, with 50% of executives planning to trim headcount, compared to only 20% at the end of January. Hiring plans were largely unchanged, as 38% plan to expand headcount at the end of the quarter, compared to 40% in January. Twelve percent of executives had no employment changes planned in March, down from 40% in January.?

Artificial intelligence was a mixed bag, with 43% of CFOs saying AI is “important” to their operations, up from 20% in January. Only 28% called it “moderately” important, down from 60% in January, but the share saying AI is “not important” advanced to 29% in March, from 20% in January.