China is unstable and likely to continue its downward spiral, Europe’s economy is weak but may soon start rebounding, and North America is steady but not spectacular. That’s the overall sentiment provided by more than 100 CFOs at some of America’s largest businesses.
CFOs at 114 US-based companies have provided a unique snapshot of economic sentiment for Q4 2015. Their answers to numerous questions found in the Deloitte Q3 CFO Signals survey have provided us with an interesting view of current North America, Europe, and China market views and expectations.
Scroll down to check out 14 charts that offer some interesting insights into the economic climate for Q4 2015.
North America confidence remains fairly strong while Europe shows signs of improvement and China falls apart.
Many CFOs believe North America is primed for a decent Q4. Only 3% described economic conditions in the region as 'bad' while 55% said conditions will improve.
Only 5% of CFOs believe Europe's economy is in 'good or very good' shape. 51% say conditions will remain 'bad' which is down from above-70% earlier this year. Nearly 30% expect Europe's economy to be better a year from now.
Only 4% of CFOs now say China's economy is 'good or very good.' More than half say the Chinese economy is 'bad.' 47% of respondents believe China's economy will be worse in one year.
CFOs believe Europe's economic conditions will improve over the next 12 months. China's economic sentiment will continue to decline and North America sentiment will remain largely unchanged.
Confidence in China continues to fall with a majority of CFOs agreeing that the country's economy now falls well into the 'very bad' field. The North American economy remains steady with sentiment remaining relatively close to sentiment reports over the last several years. Economic entiment for Europe has increased over the last quarter with CFOs hopeful for propects int he country over the next year.
CFOs are beginning to soften their own-company expectations. While CFOs have offered their 11th consecutive quarter of positive feedback, the survey shows a downward trend to the lowest level since Q4 2012. On a positive note, revenue growth expectations rose to 4.4% from last quarter's survey-low 3.1%*, but are still among the lowest on record.
Company optimism compared to last quarter is stalling after eleven straight quarters of optimism increases.
Optimism still outweighs pessimism among CFOs when asked about their company's own prospects for the next quarter. However, momentum appears to be stalling after eleven straight positive quarters. 35% of CFOs have expressed rising optimism, down slightly from last quarter's 38%, and the lowest level since Q4 2012.
For the first time in nearly two years, the S&P 500 index declined between survey midpoints (by about 1.5%), which left 60% of CFOs regarding US equities as overvalued -- down from last quarter's 65%.
Keep in mind that results were reported one day before the index fell 3.2% and before another 3.9% decline.
65% of CFOs say US markets are overvalued. That sentiment is down slightly from last quarter and even with levels one year ago. Only 5% say markets are undervalued, consistent with levels over the past year. It should be noted that CFO assessments were collected before US equity markets declined sharply on Monday, August 24, 2015.
Debt is becoming less attractive but still being used as a financing option and equity financing is in even worse shape.
CFOs generally agree that debt financing is becoming less attractive. 80% of CFOs say debt is currently an attractive financing option, but that number is down from the last several quarters. Nearly half (45%) of CFOs say it is a very attractive option.
Equity financing is still generally unattractive despite a slight uptick. More than one-third (36%) of public company CFOs say equity financing is attractive and 34% say it isn't.
Revenue growth is still being focused on more than cost reduction. Companies are also investing cash instead of giving it back to shareholders.
Revenue growth is still being focused on more than cost reduction. Deloitte says, 'A trend toward cost reduction may be emerging: Just over half of CFOs say they are biased toward revenue growth, while only 30% claim a focus on cost reduction.'
Company's are also investing more cash instead of returning it to shareholders (52% versus 20%).
Year-over-year revenue and earnings expectations rebounded from a record low last quarter with weakness emerging in energy/resources and manufacturing. According to the survey, 'Revenue growth expectations rose to 4.4%, recovering somewhat from last quarter's survey low of 3.05%. The median fell to 4.5% from 5.0% last quarter, and 79% of CFOs expect year-over-year gains (about even with last quarter's record low).'
CFOs' expectations for their companies' year-over-year dividends and capital investment have increased. Dividend growth increased to 3.7%, up from 3.4% last quarter but below the survey average of 4.0%.
Capital investment expectations are near their survey low, driven by weakness in energy/resources, technology, and manufacturing. Deloitte says 'Capital spending expectations fell from last quarter's 5.4% to just 4.3% -- only slightly above the survey low of 4.2% from 4Q12.
While CFO expectations for hiring has increased, there is no sign of large-scale job creation. Domestic hiring expectations rose to 1.4%, up slightly from last quarter's 1.2%. 57% of CFOs expect year-over-year gains (up from last quarter's 49%).
Hiring is expected to increase by 1.2% for the US, while Canada will experience a -0.9% decline and Mexico will increase jobs by an impressive 5%.
Offshore hiring growth expectations rose to 2.7%, up from last quarter's 2.0%.
Board of directors are worried about economic health in North America and China, and intensifying competition, and regulatory activity.
Nearly half (45%) of CFOs say a US slowdown is among their board's top three external risks.
Deloitte's survey respondents say 'Capital market concerns have changed very little, with shareholder activism again the most mentioned (Services is comparatively high for shareholder activism at 44%). Interest rate concerns are again very high for Financial Services CFOs at nearly 50%.'
Internal risks include sub-optimal strategies and poor execution. Cyber attacks continue to be a major concern for CFOs and board members.
Cyber attack concerns skyrocketed and are now the top operational risk concern among CFOs and many of their executive-level counterparts.
More than a third (36%) of CFOs say their boards are also worried about suboptimal strategies while 27% cite concerns about poor selection and execution of initiatives.
Three-quarters (75% ) of CFOs say US tax uncertainty is more of an afterthought than an impediment. Several companies do admit they are investing less and using cash for other purposes due to tax uncertainty but that number is low. About 15% of CFOs say that they are investing somewhat less, but are still looking for growth opportunities.
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