Strange divide emerges as CFOs feel less optimistic about the economy than a year ago, but relatively optimistic about their own prospects

Hello.

After years of optimism about the US economy, CFOs and other finance professionals are starting to see that positive outlook fade. In fact, it’s starting to feel like the glass of the economy is now half empty.

A year ago, CFO optimism was at an all-time high, with three in four feeling optimistic about the economy. Over the past year, that ratio has dropped to just over 50%, according to a survey released Friday by the Federal Reserve Banks of Richmond and Atlanta and Duke University.

Additionally, CFOs said the likelihood of seeing negative growth over the next four quarters has risen to 21%. This is double the 12% probability of a fall in GDP just a quarter ago, which in turn was twice as high as in the fourth quarter of 2021. “We have seen for two consecutive quarters a change in the how companies view the next 12 months…a turn in a negative direction,” Sonya Ravindranath Waddell, an economist at the Richmond Fed, tells me.

The reasons cited for the gloomier outlook will likely come as no surprise to CFOs: the most pressing concern cited in the second quarter was inflation, which supplanted hiring as the top headache cited in the survey. Supply chain and monetary policy concerns were also cited more frequently as top concerns in the second quarter.

A curious silver lining to the survey was this: Of the 320 CFOs surveyed, more felt better about their own prospects despite their pessimism about the US economy. Some 68% of CFOs remained optimistic about their own business, down from 75% a year earlier. That’s a drop of about 7 percentage points, compared to the 18 percentage point drop in economic optimism.

“CFOs continue to see their own business grow and are able to meet the demand they see,” says Waddell. “There’s just a sense of pessimism about the US economy, while their own businesses are still doing relatively well.”

CFOs expect their revenue to grow by an average of 9.3% this year, with that rate dropping to 6.7% next year. Adjusted for inflation, however, these figures translate into zero or negative real growth. Job growth, meanwhile, is also expected to slow to 3.7% in 2023, from an estimated 4.5% this year.

A separate survey last month of 949 accountants and finance professionals globally, including 100 CFOs, also found that confidence had fallen dramatically in all regions of the world, particularly in the Middle East. East and Western Europe, both of which depend on trade with Russia and Ukraine. A global confidence index tracked by the survey fell to minus 29.2 last quarter, from 9.5 in the first quarter.

The survey, conducted by the Association of Chartered Certified Accountants and the Institute of Management Accountants, also showed that the North American Financial Leaders Confidence Index fell less sharply, but still slipped to levels he saw deep into the Covid-19 shutdowns.

Inflation fears are also weighing on global CFOs. By mid-2020, about two in ten were worried about rising operating costs. Two years of disrupted supply chains and rising inflation left 69% of respondents in the IMA/ACCA survey worried about rising costs.

“We are seeing rising energy and transportation prices as well as supply shortages that are driving up operating costs,” Loreal Jiles, vice president of research at IMA, tells me. Rising costs helped push US inflation to a 40-year high and prompted the Fed to raise rates by 75 basis points for two consecutive months. This in turn began to erode the trust of leaders, she says.

In general, accountants and CFOs tend not to be overly optimistic nor overly pessimistic. In fact, says Jiles, their exposure to granular financial data and operational health makes their outlook a fairly reliable predictor of future economic performance. “It’s a fairly weighted group, which makes it a reliable source for assessing global economic performance,” she says.

Until tomorrow.

Kevin Keller

Twitter: @kpkelleher

Big deal

Most companies are accustomed to having votes on executive compensation approved by their shareholders. But investors and proxy advisors at big companies are beginning to reject so-called say-on-pay votes, according to a report from consultancy Mercer. So far this year, nearly 4% of say on pay votes for S&P 500 companies have failed to receive 50% of the vote, the level needed for passage, compared to 2.4% for all companies. Companies that have seen pay votes fail include Goodyear Tire & Rubber, PacWest Bancorp and Wynn Resorts. Institutional Shareholder Service, a leading proxy advisory firm, recommended voters reject 11% of S&P compensation proposals this year.

Courtesy of Mercer

Go further

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According FortuneAccording to Aman Kidwai, the flexible work program has reduced turnover rates from pre-pandemic levels and increased diverse representation. Attrition within the company was 15% lower in the second quarter compared to the same quarter in 2019, while more diverse new hires came from Spotify’s main hubs in New York and Los Angeles.

Ranking

Blake Jorgensen was appointed Chief Financial Officer and Executive Vice President of PayPal, effective August 3, 2022. Jorgensen has 40 years of experience, most recently serving as Executive Vice President of Special Projects at Electronic Arts for five months and prior to that in as CFO of the gaming company for ten years. . He was also CFO of Levi Strauss from July 2009 to August 2012 and CFO of Yahoo before that. Jorgensen will receive base compensation of $750,000, a new hire cash bonus totaling $6 million and a target bonus opportunity of 125% of his base salary. Jorgensen replaces John Rainey, who left to become Walmart’s chief financial officer in May after seven years at PayPal.

Rambus, a silicon IP and computer chip maker, operated Desmond Lynch as Chief Financial Officer and Senior Vice President, effective August 1. Lynch had served as vice president of finance at Rambus since 2020 and previously held senior finance positions at Knowles Corp., Renesas Electronics, Amtel and National Semiconductor. He will receive a base salary of $350,000, cash incentive eligibility at 75% of his base salary and a performance-based equity incentive award of $1,225,000. Lynch replaces Keith Jones as chief financial officer, who will step down on August 5 to join Adeia, an IP firm.

Kenneth Krause will join Rollins, Inc., a pest control company that owns brands such as Orkin and Clark, as chief financial officer and executive vice president beginning Sept. 1. Krause has served as chief financial officer at safety equipment manufacturer MSA Safety since 2015 and was the director of internal audit before that. He replaces Paul Edward Northen, who quit the CFO job a year ago amid an SEC investigation. Last April, R0llins agreed to pay an $8 million settlement with the SEC, which found Northen was conducting improper accounting practices. Julie Bimmerman has since held the position of interim Chief Financial Officer.

Understood

“The reality is that we have over-hired…I have approved and taken responsibility for the way we have hired for the past two years. I had anticipated that what we have seen in 2020 and 2021 in terms of working conditions market would last longer than it turned out to last.

—Vlad Tenev, CEO of Robinhood, announcing that the commission-free trading company will cut its workforce by around 23% after the recent turmoil. The company offers a cautionary tale about the challenges of hiring in volatile markets in which demand rises in boom times and then quickly tests out in down markets.