Confidence in the National Economy Went for a Roller Coaster Ride During the Second Quarter

CFO confidence continued to take a beating, based on the second quarter CFO Business Sentiment Index . Sticky inflation and reduced expectations for a retreat in interest rates were the likely culprits.

In a replay of the first-quarter results, confidence in the national economy went for a roller coaster ride: 56% projected “positive” growth in April, peaking at 75% in May before rolling back to a muted 63% in June. And while no executives saw signs of an economic pullback during the first quarter, some six percent sounded the alarm by the end of the second quarter. 

CFO concerns trickled down to their own verticals, with only 56% predicting growth in their industry by the end of the second quarter, down from 75% at the end of Q1.

Asked about top threats to the national economy, executives cited domestic political squabbles (22%), edging out global geopolitical issues (20%); while unease over inflation, and government over-regulation, were each tied at 13%. Some nine percent of respondents cited healthcare costs, and the same share pointed to challenges in attracting and retaining employees (down from 17% last quarter), while supply chain worries, military conflicts, and taxes each snared a 4% share. Terrorism and cultural issues rounded out the list. 

Only seven percent of CFOs are looking for new space, down from 12% last quarter. And about 46% plan to rebalance their portfolio, with an equal number looking to unload space (compared to 75% and 13%, respectively, at the end of the first quarter).

In another cautionary note, only seven percent of executives forecast an increase in their inventory levels, down from 11% last quarter. Approximately 40% plan to trim inventory, down from 56% last quarter, although just over half plan no change, up from 33% at the end of Q1. Sounds like fence-sitting is the flavor of the day.

The stubbornly high cost of capital appears to have diminished the appetite for M&As, as combination plans plunged to 33% in Q2, down from 75% last quarter. And at the end of the second quarter, one-third were calling for a falloff in M&A activity, up from no naysayers in the first quarter. Another third see no change in the pace of M&As, compared to 25% who said that in Q1.

Staffing changes were evenly split between executives who plan to hire, fire or stay pat (one-third each), compared to last quarter, when 50% planned cutbacks, 38% forecast expansion, and 12% saw no change to staffing levels.

CFOs continued to waver on artificial intelligence as only 22% (compared to 43% last quarter) of CFOs said AI is “important” to their operations, while 28% (unchanged) called it “moderately” important. Half of executives, however, say AI is “not important,” up from 29% last quarter.