CFO Business Sentiment Index - July 2023

The resolution of the debt ceiling issue and a slower pace of inflation seem to be spurring executive confidence about the national economy, according to the latest CFO Business Sentiment Index. Despite the overhangs of ongoing labor shortages and a possible recession down the road, only 9% of respondents see an economic slowdown, compared to 15% last month. Along with that, 36% were upbeat about the economy’s growth, a jump from 23% in June, and only 9% were “uncertain,” a plunge from 39% in the prior period. But the share of CFOs who see a “flat” trend doubled to 46% this period. Executives continue to be upbeat about their own industries, however, with 64% seeing positive growth for their vertical, a slight rise from 62% last month. The negative-growth share fell to 9% this go-around, down from 15% last month.

Executives continue to see geopolitical and supply chain-concerns as the top threat to the U.S. economy — 81% in this month’s Index, down only slightly from 84% in the June report. Notably, however, for the first time some now name China as an economic threat. Employee acquisition and retention worries retained their #2 spot with 14% reporting such concerns, and tax concerns rose from a low of 2% in June to 5% this month.

Work-from-home and other remote arrangements continue to impact CFOs’ appetite for real estate, but more are looking to rebalance portfolios (73%, up from 50% in June), instead of disposing space (27%, down from 50% in the last period). For the second straight month, no CFOs plan to expand their holdings.

Increased confidence about economic prospects appears to be fueling CFOs’ appetite for inventory, as one-third plan to boost their in-stock levels, a jump from 8% who said that last month. Another third plan inventory drawdowns, a slight bump from 31% in June, while one-third plan no changes, down from 62% in the previous period.

Expectations of rising customer demand and lower interest rates boosted M&A plans, with 64% of executives seeing an increase, compared to 42% last month. Similarly, only 18% forecast a slowdown, compared to 25% last month. And only 18%, down from one-third in June, see no change.

Hiring plans held steady in July as 27% of CFOs — up from 23% last month — plan increases, while only 18%, a drop from 39% in June, see layoffs coming. Just over half (55%) see no hiring changes, up from the 39% who said that last month.