Evening Brief – 04.24.24
CFO Optimism Rises
CFOs are more bullish about the U.S. economy than they have been in nearly three years, according to a new survey from Grant Thornton LLP, a provider of audit and assurance, tax and advisory services.
The firm’s Q1 2024 CFO survey, which polled 273 senior financial leaders, found that 34% of CFOs are “very optimistic” about the U.S. economy, an 11-quarter high. At the same time, 12% of CFOs expressed pessimism, marking an 11-quarter low.
“The expectation that the Fed may lower interest rates continues to have a positive effect on some of our clients, and obviously that’s good from the perspective of the overall economic outlook,” said Jim Wittmer, Grant Thornton’s national managing partner for tax growth.
Nonetheless, challenges remain. CFOs continue to prioritize operational expenses, with 55% citing cost management as a high emphasis area.
Furthermore, 50% of CFOs predicted that operations costs will rise in the coming year, tying an all-time high in the study and reflecting a 12-percentage point increase from the previous quarter.
The rising trend is being driven by inflationary costs, particularly an increase in the cost of global shipping, rather than a significant investment in operations, according to Paul Melville, the firm’s national managing principal of CFO Advisory services.
At the same time, 37% of respondents want to boost their real estate and facilities spending, a slight decrease from the all-time high of 40% in the previous quarter. Melville said this does not necessarily indicate a back-to-office trend or increased demand for office space in the struggling commercial real estate industry.
Rather, Melville said the increased facility costs reflect a warehouse-building boom driven by nearshoring in manufacturing, as well as an increase in e-commerce, which necessitates significant warehousing and logistics capacity.
To address these cost concerns and trends, CFOs are turning to automation, data analytics, and artificial intelligence (AI) for increased efficiency.
Respondents reported an all-time high use of generative AI (47%), which coincided with a 10-point increase in the proportion of CFOs that expect their cybersecurity expenditures to rise.
Despite these cost-related issues, economic optimism remains high, with 71% of CFOs forecasting net profit increase over the next year.
Despite the significant interest rate hikes that began in 2022, access to capital has remained generally unimpeded, with only 22% of survey respondents indicating a decrease in availability. However, capital is substantially more expensive than two years ago, and CFOs are divided on where their funding will come from over the next two years.
To that end, 42% cited bank borrowing, while the same percentage mentioned private equity or credit. Meanwhile, nearly one-third (31%) of respondents plan to take advantage of the Inflation Reduction Act tax benefit.