Chief Financial Officers (CFOs) in the U.S. are increasingly uneasy about the economic future. Their concerns center around monetary policy, inflation, and labor market conditions. This data was just revealed in a survey by the Federal Reserve Banks of Richmond and Atlanta in collaboration with Duke’s Fuqua School of Business. The survey revealed that nearly one-third of financial executives are delaying, scaling down, or canceling investments due to uncertainty surrounding the upcoming U.S. presidential election.
Corporate CFO investments aim not only to keep cash balances productive but also to impact the wider economy. These investments can include plant and equipment, technology, research and development, acquisitions, and securities.
About the Survey
The survey, which is conducted quarterly, polls CFOs on their spending plans, economic outlook, and key concerns. The latest results show that optimism among finance chiefs remains moderate, with an average rating of 60.6 on a scale from 1 to 100, unchanged from the first quarter but higher than the same period last year.
The 447 respondents expect an average U.S. GDP growth rate of 1.8% over the next 12 months, slightly lower than previous quarters.
Persistent Cost Pressures
Despite the moderate optimism, CFOs foresee continued cost pressures. A significant 57% of respondents expect the prices of their products to increase at a higher rate than before the pandemic. Daniel Weitz, survey director at the Atlanta Fed, explained that although higher unit costs, wages, and prices have slowed from their pandemic era peaks, “price expectations among surveyed financial leaders are not back to their pre-pandemic levels.” This suggests that pricing pressures have remained persistent.
To manage these pressures, executives are increasingly planning to automate tasks currently performed by employees. The majority anticipates that artificial intelligence (AI) will be crucial in enhancing product quality and output, reducing labor costs, and substituting workers.
John Graham, a finance professor at Duke University and the survey’s academic director, mentioned, “CFOs say their firms are tapping AI to automate a host of tasks. He went on to outline these tasks as including paying suppliers, invoicing, procurement, financial reporting, and optimizing facilities utilization.”
Election Impact on Investment Decisions
The survey says the upcoming U.S. presidential election significantly influences investment decisions. The survey indicates that 28% of CFOs are delaying or scaling down investments due to political uncertainty.
It’s worth noting that this figure is lower than the 50% recorded in June during the 2016 presidential year, but it still highlights the cautious stance of finance chiefs. Moreover, 32% of respondents acknowledge the election’s influence on their investment decisions.
In the broader global market, political risks are also affecting investment strategies. For example, a new bond offering by French electrical device maker Legrand (LR) has received strong orders, indicating that non-financial corporates are seen as a haven amid election fears.
Key Takeaway
CFOs’ uncertainty over lower inflation, economic growth, and election outcomes is shaping their strategies. Many are altering their investment plans, focusing on automation to curb production costs, and carefully managing political risks.
As the U.S. economy faces these challenges, the decisions made by CFOs today will significantly impact their companies’ future financial health.
