CFOs more worried about inflation than recession: Deloitte

Dive Brief:

Almost half (46%) of CFOs expect the North American economy to be in a recession by 2023 and are preparing by controlling hiring, limiting headcount and boosting productivity, said the Deloitte Q3 Signals survey released Aug. 29.
Although CFOs are clearly bracing for a recession, nearly three-quarters (73%) are more concerned about persistent inflation compared to 27% surveyed who are more worried about a recession, the study found. Geopolitics and talent retention are also top concerns, the survey found.
CFOs are more familiar with economic downturns than high inflation but evaluating the likelihood of the economic scenarios is crucial to setting the right strategy, “because a CFO’s response to the declining demand associated with a recession will likely be quite different from a CFO’s response to the overheated demand associated with high inflation,” Steve Gallucci, national managing partner for the US CFO Program at Deloitte, said in an interview.

Dive Insight:

Deloitte’s third quarter Signals Survey survey was conducted between Aug.1 and Aug. 15 and includes responses from a total of 112 CFOs of public and private companies. The results came ahead of Federal Reserve Chair Jerome Powell’s speech Friday in Jackson Hole, Wyoming where he hinted at another interest rate boost and emphasized caution over optimism regarding the dip in inflation in July.

Gallucci said he couldn’t speculate as to exactly why more CFOs are concerned about inflation than a recession but noted economic downturns have been more prevalent in recent U.S. history than sustained periods of inflation. “As recently as Q1 and Q2 2020 amid initial COVID-19 outbreaks and lockdowns, organizations were forced to cope with slowing economic conditions,” he said.

Overall, the sentiment surrounding future economic conditions improved from the second quarter; however, optimism is still significantly down from the two-year average, the survey said. In regards to current economic conditions, the surrounding sentiment fell this quarter compared to the prior period.

CFOs said that inflation/stagnation and geopolitics were their top external risk concern for this quarter. Relations between Russia and China — which can lead to higher inflation and an inability to control it — trumped concerns of a recession, according to the survey.

As far as internal concerns for CFOs, retention and talent remain at the top of the list. “CFOs’ internal concern over talent is multi-faceted,” said Gallucci. “Retention continues to bubble-up to the top of CFOs’ talent worries as the labor market remains resilient. CFOs are also focused on their organizations’ working arrangements in the post-pandemic period. The key word from the survey was ‘managing’ — managing talent needs and talent’s expectations amid managing against inflation,” he said.

In spite of the macroeconomic uncertainty, CFOs are not losing their appetite for risk.Thirty-eight percent of those surveyed view now as a good time to take risks, up from the 35% last quarter, the study found.