CFOs’ Economic Forecast: Sunny, but Storm Clouds Lurk

Senior financial executives at large organizations in the United States, Canada and Mexico are feeling bullish about the economic environment in key regions, as well as their own companies’ prospects, according to Deloitte’s latest quarterly CFO Signals survey report (a pdf download is available here). The forecast is not completely rosy, however, which makes sense given the uncertainty currently bubbling to the surface from a range of political and geopolitical sources.

Nearly three-quarters of the CFOs polled in a broad range of industries reported that they viewed economic conditions in North America as good, up from 64 percent in the previous quarter. Perceptions of conditions in Europe and China also rose sharply, to their highest levels in nearly five years.

After declining for the two previous quarters, net optimism for business growth rebounded sharply, with about 52 percent of CFOs expressing rising optimism about the financial prospects of their own business, and just 5 percent expressing declining optimism. More than 60 percent of CFOs say they are now biased toward revenue growth, and less than 20 percent are focusing on cost reduction.

Any clouds on the horizon? Well, yes. A disturbing 84 percent of respondents think U.S. equity markets are overvalued; notably, that’s the highest proportion since the first quarterly survey in the series appeared way back in the second quarter of 2010. Concerns about talent availability continue to rise, too. Nearly two-thirds of finance leaders expect that securing and retaining quality talent will be difficult over the next year.

Perhaps as a result of that last difficulty, nearly 45 percent of CFOs surveyed said the trend toward using technology to enhance or replace human effort is affecting their long-term business strategy.

Another digital megatrend, the drive toward data and analytics, was by far the most frequently cited factor influencing business strategy. Sixty-one percent of respondents reported that their organization is focusing on acquiring more data and developing the ability to synthesize data for business decisions. We’ll keep you posted on these trend lines as the year continues to progress.