CFOs Raise Their Expectations for Growth Across key Metrics, but Cite Concerns Over Inflation, Talent and Execution: Deloitte CFO Signals™ Survey

Key takeaways

• Three-quarters of CFOs view the current conditions of North America’s economy as good or very good, up from 29% in the first quarter of 2021.
• Seventy-five percent of CFOs are more optimistic about their companies’ financial prospects than three months ago.
• Eighty-six percent of CFOs believe equities are overvalued, the highest reading in a decade.
• Threats to economic stability, including inflation, are CFOs’ most-often cited external risk.
• Recruiting and retaining talent is the most widely cited internal risk for CFOs, followed by growth and execution.
• CFO expectations for domestic hiring grew to the highest level in a decade, and wage growth expectations ticked upward.
• Seventy-two percent of CFOs indicated their companies have a formal DEI strategy; 60% said their companies have or plan to have a defined budget for DEI in the next year.
• Changing customer demands (47%) and disruptive technologies (40%) are the top-two drivers of transformation, while technology/systems upgrades (40%) and strategy/model/offerings (35%) are the two leading types.

Why it matters to CFOs?
Each quarter, CFO Signals™ tracks the thinking and actions of leading CFOs representing North America’s largest and most influential companies. Since 2010, the survey has provided key insights into the business environment, company priorities and expectations, finance priorities and CFOs’ personal priorities. Participating CFOs represent diversified, large companies, with the vast majority reporting revenue in excess of $1 billion. More than a quarter are from companies with greater than $10 billion in revenue.

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Economic outlook
The proportion of CFOs rating the current North American economy as good or very good increased significantly from 29% in the first quarter of 2021 to 75%. Only 3% rated it as bad, down from 13% in the first quarter of 2021. The percentage of CFOs expecting better conditions in a year, however, dipped from 73% in the first quarter of 2021 to 62% in this quarter. Assessments of Europe’s current and future economies improved to 19% and 46%, respectively. More than half (62%) of CFOs rated China’s current economy as good, up from 57% in the first quarter of 2021, but the percentage of those expecting better conditions in a year (53%) fell from 64% in the previous survey.

Capital markets
Eighty-six percent of CFOs participating in this quarter’s survey regarded the U.S. equity markets as overvalued, up from 83% in the first quarter of 2021, and also a survey high from the second quarter of 2010. Only 2% of respondents view U.S. equities as undervalued. Ninety-two percent of CFOs say debt financing is attractive, just above the 91% who considered it attractive in the first quarter of 2021. Equity financing’s attractiveness rose to 56% overall — again slightly above the 55% who rated it as attractive in the prior quarter.

Risk-taking and risk concerns
The percentage of CFOs saying now is a good time to be taking greater risk dipped slightly from 66% in the first quarter of 2021 to 65% this quarter. Nevertheless, the percentage hovers just slightly below the high point of 69% in the first quarter of 2018 and far exceeds the 27% of CFOs who said now is a good time to be taking greater risk in second quarter of 2020. CFOs’ most worrisome external risks are economic stability and inflation, followed by growth and execution. Their chief internal risk is talent —retaining, recruiting and transitioning employees back to work on site.

Own-company sentiment
Compared to three months ago, more than half of CFOs (59%) feel somewhat more optimistic about their company’s financial prospects, and 16% are significantly more optimistic — both upticks from the first quarter of 2021. Only 5% are somewhat less optimistic, while the remainder see their companies’ financial prospects as broadly unchanged.

Key operating metrics
CFOs’ year-over-year growth expectations rose across the board from last quarter: Revenue growth expectations increased from 8.5% in the first quarter of 2021 to 9.6%. Earnings growth expectations jumped from 12.8% in the first quarter of 2021 to 13.6%. Capital spending growth saw improvement, from 10.2% in the first quarter of 2021 to 12.4%. Dividend growth inched up from 3.3% in the first quarter of 2021 to 4%. Domestic hiring rose from 2.7% in the first quarter of 2021 to 4.1%. Domestic wages/salaries increased from 3.1% in the first quarter of 2021 to 3.4%.

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Key quotes
“After more than a year of unprecedented challenges, the 2Q21 survey found that economic sentiment is shifting among CFOs and levels of optimism toward the North American economy are rising. As we move toward a post-pandemic world, companies are intensely focused on continuing to accelerate their digital transformations as well as optimizing the talent experience for their people with new workplace models.”

“The second quarter of 2021 report took a look at how CFOs and their companies are addressing diversity, equity, and inclusion, or DEI — and the findings indicate a wide range of definitive actions. For example, 72% indicated their companies have a formal DEI strategy, while 60% reported their companies have or plan to have a defined budget for DEI in the next year. Half said DEI objectives are linked to performance evaluations, and 48% said their companies report DEI representation metrics to investors.”

Transformation amid the pandemic
We asked CFOs about their companies’ transformation efforts, what’s driving them, and the role CFOs are playing. Changing customer demands (47%) and disruptive technologies (40%) are the top-two catalysts, while technology/systems upgrades (40%) and strategy/model/ offerings (35%) are the two leading types of transformation underway. Nearly half (42%) of CFOs said their primary role is co-leader and 16% leader, while 19% cited serving as sponsor and enabler each. For finance teams, transformations are demanding better support for decisions (72%) and operations (31%), followed by greater efficiency (24%) and better business knowledge (16%).

Diversity, equity, inclusion (DEI)
We also asked CFOs about their companies’ approaches to advancing DEI: 72% noted their companies have a formal DEI strategy, up from 67% when we asked a similar question in the first quarter of 2019. Sixty percent of CFOs reported their companies have or plan to have a defined budget for DEI in the next year, and 48% said their companies report out on DEI representation metrics to investors and other stakeholders. Moreover, 50% of CFOs noted their companies hold leadership accountable for achieving DEI goals* in performance evaluations.

*Goals are not quotas.

Methodology
Each quarter, CFO Signals tracks the thinking and actions of CFOs representing many of North America’s largest and most influential organizations. This report summarizes CFOs’ opinions in four areas: business environment, company priorities and expectations, finance priorities, and CFOs’ personal priorities.

The CFO Signals survey for the second quarter of 2021 was conducted between May 3, 2021, and May 14, 2021. A total of 138 CFOs responded. This survey seeks responses from client CFOs across the United States, Canada and Mexico, and the vast majority are from companies with more than $1 billion in annual revenue. Participation is open to all industries except public sector entities.