Your peers are feeling less optimism about the economy as prices stay high this quarter, according to the latest results from The CFO Survey, a collaboration between the Federal Reserve banks in Richmond, VA, and Atlanta, and Duke University.
In particular, the CFO Optimism Index, which measures participants’ feelings about the economy on a scale from 0 to 100, is the lowest it’s been in three quarters. This quarter, CFOs’ optimism is at 50.7 – a significant decline from two quarters ago, when it was at 60.3.
This view is likely influenced by high fuel prices caused, in part, by the conflict between Russia and Ukraine.
Overall, your peers expect real GDP to grow only 1.5% over the next year – with the average probability of negative GDP growth being 21%.
Company-specific outlook
When looking at their companies specifically, CFOs expect cost pressures to remain high going forward. Your peers are expecting an 8% rise in input costs this quarter, and they’re also expecting revenue growth to remain stagnant.
Most firms are also expecting employment growth to be moderate – which means they’re still expecting to take on at least some of the costs of hiring and onboarding despite a lack of revenue growth.
Borrowing concerns in current economy
Since the Federal Reserve has promised a series of interest rate increases to curb high rates of inflation, many CFOs aren’t expecting to borrow to fund their companies’ operations.
Around 60% of those responding to The CFO Survey said they currently had no plans of borrowing in the next 12 months. Most of them said they had enough cash on hand to fund their operations for at least that period of time – but close to 1 in 10 firms said interest rates were currently too high for them to consider borrowing right now.
For firms that do plan to borrow in the next 12 months to fund operations, interest rate increases would impact both the amount they’d borrow and their general capital spending. If rates increased by just 1%, between 80 and 90% said this wouldn’t affect the amount they chose to borrow or their spending plans.
However, if interest rates increased by 2%, half of companies that planned to borrow would reduce their capital spending plans. And if they went up by 3%, two-thirds of firms planning to borrow would decide to change their capital spending plans.
Time will tell whether your peers’ feelings about the economy are correct – and whether borrowing now will hurt the bottom line later. With that in mind, it’s smart to be cautious about any big-picture budgeting moving forward.