Category Archives: Business

Deloitte “CFO Signals” Report Q3 2016 – Notable Aspects

Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 3rd Quarter of 2016.

As seen in page 2 of the report, “One hundred twenty-two CFOs responded during the two-week period ending August 19. Seventy-three percent of respondents are from public companies, and 80% are from companies with more than $1B in annual revenue. For more information, please see the “About the survey” section of this report.”

Here are some of the excerpts that I found notable:

from page 3:

Perceptions

How do you regard the current and future status of the North American, Chinese, and European economies? Forty-six percent of CFOs describe the North American economy as good or very good (up from 40% last quarter), and 37% expect better conditions in a year (down from 39%). Ten percent regard China’s economy as good (up from 9% last quarter), and 14% expect improvement (up from 10%). In the aftermath of the Brexit vote, just 4% describe Europe’s economy as good (down from 6%), and only 10% see it improving in a year (down from 15%). Page 8.

What is your perception of the capital markets? Seventy-one percent of CFOs say US equity markets are overvalued (up substantially from 56% last quarter and a new survey high). Eighty-nine percent say debt is currently an attractive financing option (up from 80%), and 42% of public company CFOs view equity financing favorably (up from 30% last quarter). Page 9.

Expectations

Compared to the past 12 months, how do you expect your key operating metrics to change over the next 12 months?* Revenue growth expectations rose slightly from last quarter’s 4.0% to 4.2%, but are still among their survey lows. Earnings growth expectations declined to 6.1%, well off last quarter’s 7.7% and near 1Q16’s survey low. Capital spending expectations, having increased sharply last quarter from 1Q16’s survey-low 1.7% to 5.4%, rose slightly to 5.6% this quarter. Domestic hiring growth expectations rose significantly to 2.3% from last quarter’s 1.1%. Pages 11-13.

Sentiment

Compared to three months ago, how do you feel now about the financial prospects for your company? This quarter’s net optimism declined from last quarter’s +30.0 to a still-strong +19.7, marking the fifteenth consecutive netpositive reading. Thirty-five percent of CFOs express rising optimism (down from 49% last quarter), and the proportion citing declining optimism fell from 19% to 16%. Page 14.

Overall, what risks worry you the most? CFOs mention global economic stagnation, low interest rates, a strong dollar, and regulatory uncertainty— concerns that appear amplified by worries about Brexit, US elections, and the tenor of geopolitics worldwide. Page 15.

Special topic: Business environment

How much are macroeconomic factors affecting your business planning? Nearly 90% of CFOs say low interest rates are significantly impacting their business planning, and more than 80% say the same for a strong US dollar. About 70% cite impacts from slow European growth, and nearly 65% cite slow Chinese growth. Fifty-seven percent cite impacts from both the upcoming US elections and the UK’s Brexit vote. Page 16.

*Averages are means that have been adjusted to eliminate the effects of stark outliers.

from page 4:

Mixed sentiment and expectations

This quarter’s net optimism1 of +19.7 is down from last quarter’s +30.0 (which came after a dismal +1.7 in the first quarter), but it still indicates considerable strength. Sentiment is net-positive across all industries except Retail/Wholesale, with Manufacturing and Technology indicating particular strength.

Despite this optimism, CFOs’ expectations for revenue, earnings, capital spending, and domestic hiring growth are mixed. This quarter’s 4.2%* expectation for yearover-year revenue growth is up from last quarter’s 4.0%* and from 3.3%* the quarter before that, but it is still among the lowest in the survey’s history. Similarly, this quarter’s earnings growth expectation of 6.1%* is barely above 1Q16’s survey-low 6.0%* and is well off last quarter’s 7.7%*.

On a more positive note, capital investment growth expectations, which bottomed out at just 1.7%* in 1Q16, rose to 5.4%* last quarter and to 5.6%* this quarter—well above the 4.7%* average over the past two years. Similarly, this quarter’s domestic hiring growth expectation of 2.3%* is well above the 1.1% to 1.4% levels we have seen over the last year and a half (and 1Q16’s low of 0.6%).

*Averages are means that have been adjusted to eliminate the effects of stark outliers.

¹ Net optimism is calculated as the difference between the proportions of those expressing rising and falling optimism. Accordingly, this metric does not explicitly account for the level of “no change” responses.

from page 11:

Revenue and earnings

Revenue[1]

Expectations remain among their survey lows; weakness is again evident across nearly all industries, but Energy/Resources continued to improve:

Other than one optimistic quarter in 4Q15, revenue growth has been on a downward trend since 2Q15 and come in at or near survey lows. This quarter’s 4.2% is up from last quarter’s 4.0% and from 3.3% the quarter below that, but it is still among the lowest in the survey’s history. The median this quarter repeated at 4.0%, and 83% of CFOs expect year-over-year gains (considerably up from the last two quarters). The distribution2 of this quarter’s responses is the lowest in almost two years.

Country expectations (this quarter/last quarter): US 3.9%/3.7%; Canada 6.2%/3.1%; Mexico 8.0%/8.6%.

Industry expectations (this quarter): Highest are T/M/E (8.0%) and Healthcare/Pharma (6.0%); lowest are Services (0.9%) and Manufacturing (2.8%).

Earnings1

Expectations declined across all geographies; Retail/Wholesale showed strength, while Financial Services came in near its survey low:

Earnings expectations have mostly been trending downward since the survey was launched in 2Q10. This quarter’s earnings growth expectations came in at 6.1%, barely above the 1Q16 survey low of 6.0% and well off of last quarter’s 7.7%. The median fell from 7.0% to 5.0%, and the percentage of CFOs expecting year-overyear gains rose from 76% last quarter to 81%. The distribution2 of responses was well below the average for this metric.

Country expectations (this quarter/last quarter): US 6.2%/7.3%; Canada 3.8%/9.4%); Mexico 8.5%/9.7%.

Industry expectations (this quarter): Highest are Retail/Wholesale (10.4%) and T/M/E (7.5%); lowest are Services (3.2%) and Financial Services (4.2%); notable is Healthcare/Pharma (5.7%, down from 10.9%).

[1] All averages have been adjusted to eliminate the effects of stark outliers.

[2] “Distribution” refers to the spread of the middle 90% of responses.

from page 13:

Domestic and offshore hiring

Domestic hiring[1]

Expectations rebounded with several industries showing significant improvement:

Domestic hiring expectations have been around 1.2% since 2Q15 and bottomed out in 1Q16 at 0.6%. This quarter’s 2.3% breaks that trend and is well up from last quarter’s 1.1%. The median remained 1.0%, and the proportion of CFOs expecting gains declined slightly from 55% to 53% (about even with the survey average). The distribution2 of responses is among the lowest for this metric.

Country expectations (this quarter/last quarter): US 1.9%/0.9% (secondlowest level in three years); Canada 4.8%/0.9%; Mexico 7.0%/3.9%.

Industry expectations (this quarter): Highest are T/M/E (7.3%), Healthcare/Pharma (3.6%), and Technology (3.3%); lowest are  Manufacturing (1.0%), Energy/Resources (1.3%), and Services (2.1%).

Offshore hiring1

Expectations remain near their three-year low:

Offshore hiring growth expectations fell markedly in 1Q16 and have stayed low since then. This quarter’s 1.9% is only slightly up from last quarter’s three-year-low of 1.8%. The median remains at 0.0%, and 43% of CFOs expect gains (up from last quarter’s 39%).

Country expectations (this quarter/last quarter): US 1.9%/1.9%; Canada 1.1%/0.0%; Mexico 4.5%/1.6%.

Industry expectations (this quarter): Highest is Technology (4.1%); lowest are Energy/Resources (0.5%) and Manufacturing (1.3%).

Domestic wage growth1

Expectations down somewhat, but still comparatively high:

Domestic wage growth declined to 2.7% from last quarter’s 3.1%. The median held at 3.0%, and 97% of CFOs expect gains.

Country expectations (this quarter/last quarter): US 2.7%/3.1%; Canada 2.6%/2.2%; Mexico 4.3%/4.6%.

Industry expectations (this quarter): Highest is T/M/E (4.0%); lowest are Energy/Resources (2.3%) and Manufacturing (2.6%).

[1] All averages have been adjusted to eliminate the effects of stark outliers.

[2] “Distribution” refers to the spread of the middle 90% of responses.

from page 15:

Most worrisome risks

External concerns

Rising concerns about the tenor and potential economic impact of geopolitics—especially in Europe and the US: 

Heightened election and policy concerns: Regulatory concerns are again strong and industry dependent. US election worries skyrocketed last quarter and increased this quarter (again with concerns around international trade and tax policy). Concerns about the tenor of the worldwide political environment rose sharply.

Concerns about broader global economic performance: For several quarters, including this one, CFOs’ concerns have appeared to be shifting from a specific focus on Europe and China to a more generalized focus on global economic stagnation and volatility.

Moderating concerns about the US economy: Perhaps influenced by equity and real estate markets that are near all-time highs, strengthening consumer sentiment, and mostly positive economic news this quarter, CFOs’ concerns about the US economy appeared to decline. Still, rising concerns about political and policy uncertainty and lagging business spending suggest CFOs see potential risks to future US economic performance.

Less concern about capital markets; more about interest rates: With equity markets having recovered strongly, concerns about financial market risk appear to have declined. Concerns about a strong dollar and global debt levels also decreased, but concerns about interest rates (the possibility of rate increases and the longterm impacts of continuing low rates) rose sharply.

Falling commodity price worries: After climbing sharply over the last two quarters, worries about oil and other commodity prices fell significantly this quarter.

Internal concerns

Talent again the top internal challenge:

Consistent talent challenges: Concerns around securing and retaining key personnel continued this quarter, as did those related to leadership succession.

Escalating growth and execution concerns: CFOs again voiced concerns about executing their growth initiatives, innovating, and executing against their strategies and plans.

Among the various charts and graphics in the report are graphics depicting trends in “Own Company Optimism” and “Economic Optimism” found on page 6.

_____

I post various business and economic surveys because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with many of the consensus estimates and much of the commentary in these surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2149.85 as this post is written

NFIB Small Business Optimism – August 2016

The August NFIB Small Business Optimism report was released today, September 13, 2016. The headline of the Small Business Economic Trends report is “Political Climate As Negative Factor Hits Record High In Monthly NFIB Index Of Small Business Optimism.”

The Index of Small Business Optimism increased .2 points in August to 94.4.

Here are some excerpts from that I find particularly notable (but don’t necessarily agree with):

At 94.4, the Index remains well below the 42-year average of 98. Five of the 10 Index components posted a gain, four declined, and one remained unchanged. The outlook for business conditions in the next six months had the most dramatic change, dropping seven points. Setting an all-time high for the survey, 39 percent of business owners cited the political climate as a reason not to expand.  Uncertainty about the economy and government policy also hit record highs among small business owners.

also:

Inventory and Sales

The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past 3 months compared to the prior 3 months fell 1 percentage point to a net negative 9 percent. Eleven percent cited weak sales as their top business problem, down 1 point from July. Seasonally adjusted, the net percent of owners expecting higher real sales volumes fell 2 points to a net negative 1 percent of owners, a weak showing.

The net percent of owners reporting inventory gains increased 5 points to a net negative 0 percent (seasonally adjusted), restoring some balance after a major reduction in the first half of the year. The net percent of owners viewing current inventory stocks as “too low” improved 2 points to a net negative 2 percent. The net percent of owners planning to add to inventory increased 1 point to a net 1 percent, not a strong picture, but now positive and a contribution to growth if owners follow through as planned.

also:

Capital Spending

Fifty-seven percent reported capital outlays, down 2 points from July. The percentage of owners making an outlay peaked in July 2015 at 61 percent, revisiting that percentage in January but has faded since. The percent of owners planning capital outlays in the next 3 to 6 months rose 3 points to 28 percent. This is 1 point better than the recovery high reading reached in October 2014, but historically weak. The small business sector remains in “maintenance mode”. Seasonally adjusted, the net percent expecting better business conditions deteriorated 7 percentage points to a net negative 12 percent. Clearly, expectations for the economy are not conducive to a meaningful improvement in business investment as prospects for profits are poor.

Further details regarding small business conditions can be seen in the full August 2016 NFIB Small Business Economic Trends (pdf) report.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2127.02 as this post is written

Corporate Profits As A Percentage Of GDP

In the last post (“2nd Quarter 2016 Corporate Profits“) I displayed, for reference purposes, a long-term chart depicting Corporate Profits After Tax.

There are many ways to view this measure, both on an absolute as well as relative basis.

One relative measure is viewing Corporate Profits as a Percentage of GDP.  I feel that this metric is important for a variety of reasons.  As well, the measure is important to a variety of parties, including investors, businesses, and government policy makers.

As one can see from the long-term chart below (updated through the second quarter), (After Tax) Corporate Profits as a Percentage of GDP is at levels that can be seen as historically (very) high.  While there are many reasons as to why this is so, from a going-forward standpoint I think it is important to recognize both that such a notable condition exists, as well as contemplate and/or plan for such factors and conditions that would come about if (and in my opinion “when”) a more historically “normal” ratio of Corporate Profits as a Percentage of GDP occurs.  This topic can be very complex in nature, and depends upon myriad factors.  In my opinion it deserves far greater recognition.

(click on chart to enlarge image)

Corporate Profits As A Percentage Of GDP

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 26, 2016

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2173.94 as this post is written

2nd Quarter 2016 Corporate Profits

Friday’s (August 26, 2016) GDP release (Q2, 2nd Estimate)(pdf) was accompanied by the BLS Corporate Profits report for the 2nd Quarter.

Of course, there are many ways to adjust and depict overall Corporate Profits.  For reference purposes, here is a chart from the St. Louis Federal Reserve (FRED) showing the Corporate Profits After Tax (without IVA and CCAdj) (last updated August 26, 2016, with a value of $1626.9 Billion):

Corporate Profits After Tax

Here is the Corporate Profits After Tax measure shown on a Percentage Change from a Year Ago perspective:

Corporate Profits After Tax percent change from a year ago

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Corporate Profits After Tax [CP]; U.S. Department of Commerce: Bureau of Economic Analysis; accessed August 26, 2016; https://research.stlouisfed.org/fred2/series/CP

_________

I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2184.67 as this post is written

CEO Confidence Surveys 2Q 2016 – Notable Excerpts

On July 7, 2016, The Conference Board released the 2nd Quarter Measure Of CEO Confidence.   The overall measure of CEO Confidence was at 52, up from 47 in the first quarter. [note:  a reading of more than 50 points reflects more positive than negative responses]

Notable excerpts from this July 7 Press Release include:

CEOs’ assessment of current economic conditions improved somewhat, with 21 percent saying conditions are better compared to six months ago, up from about 19 percent last quarter. Business leaders’ appraisal of current conditions in their own industries was considerably more favorable, with 30 percent stating conditions in their own industries have improved, up from 18 percent in the first quarter.

CEOs’ short-term outlook continued to improve, with about 25 percent expecting better economic conditions over the next six months, up from 18 percent last quarter. The outlook for their own industries was also more favorable, with almost 33 percent of CEOs anticipating an improvement in conditions over the next six months, up from 22 percent in the first quarter.

The Business Roundtable last month also released its CEO Economic Outlook Survey for the 2nd Quarter of 2016.   Notable excerpts from the June 15, 2016 release, titled “CEO Economic Outlook Shows Modest Improvement“ (pdf):

The Business Roundtable CEO Economic Outlook Index — a composite of CEO projections for sales and plans for capital spending and hiring over the next six months — increased modestly from 69.4 in the first quarter 2016 to 73.5 in the second quarter. The Index remains below its historical average of 79.8 but well above 50, indicating continued economic expansion.

CEO expectations for sales over the next six months improved by 0.8 points, while plans for capital expenditures moved up by 8.1 points, relative to last quarter. Expectations for hiring increased by 3.5 points from last quarter.

However, in their third estimate of real GDP growth for 2016, CEOs expect 2.1 percent growth, down from their 2.2 percent estimate in the first quarter of 2016.

_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2129.90 as this post is written

Deloitte “CFO Signals” Report Q2 2016 – Notable Aspects

Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 2nd Quarter of 2016.

As seen in page 2 of the report, “One hundred forty CFOs responded during the two-week period ending May 20. Seventy-two percent of respondents are from public companies, and 78% are from companies with more than $1B in annual revenue. For more information, please see the “About the survey” section of this report.”

Here are some of the excerpts that I found notable:

from page 3:

How do you regard the current and future status of the North American, Chinese, and European economies? Forty percent of CFOs describe the North American economy as good or very good (41% last quarter), and 39% expect better conditions in a year (up from 35% last quarter). Nine percent regard China’s economy as good (same as last quarter), and 10% expect improvement (down from 11%). Six percent describe Europe’s economy as good (up from 5%), and only 15% see it improving in a year (down from 17%). Page 8.

What is your perception of the capital markets? Fifty-six percent of CFOs say US equity markets are overvalued (up dramatically from 30% last quarter). Eighty percent say debt is currently an attractive financing option (up from 68%), and 30% of public company CFOs view equity financing favorably (up from 22% last quarter). Page 9.

Compared to the past 12 months, how do you expect your key operating metrics to change over the next 12 months?* Revenue growth expectations rose from 3.3% to 4.0%, but are still among their survey lows. Earnings growth expectations rose to 7.7% from last quarter’s survey-low 6.0%. Capital spending expectations rebounded strongly from last quarter’s survey-low 1.7% to 5.4%. Domestic hiring growth expectations rose to 1.1% from last quarter’s survey-low 0.6%. Pages 11-13.

*Averages are means that have been adjusted to eliminate the effects of stark outliers.

from page 4:

Better (but not good) expectations

This quarter’s net optimism¹ of +30.0 marks a sharp reversal from declining sentiment that left last quarter’s measure at +1.7—the lowest level in more than three years. Sentiment is net-positive across all industries, with both Manufacturing and Energy/Resources posting significantly more optimism than they did last quarter. Consistent with this reversal, CFOs’ expectations for revenue, earnings, capital spending, and domestic hiring all rebounded from last quarter’s mostly dismal levels. But the gains for some metrics were modest. Revenue growth expectations, for example, rose from last quarter’s 3.3%* to 4.0%,* but remain relatively low. Moreover, nearly all industries continue to show weakness, with Manufacturing again lowest. Similarly, earnings growth expectations rebounded from their survey-low 6.0%* last quarter to 7.7%*—better, but still well off the long-term average. All industries expect positive growth (with Energy/Resources and Healthcare/Pharma highest and Manufacturing improving), but most are still comparatively low. Domestic hiring growth expectations rose to 1.1%* from last quarter’s survey-low 0.6%,* but they are still relatively low as well. Energy/Resources, Manufacturing, and Services were all below 0.5%. Capital spending is the bright spot, rebounding strongly from last quarter’s survey-low 1.7%* to 5.4%*—the highest level since the second quarter of 2015. Expectations for Manufacturing improved, but Energy/Resources again lagged.

* Arithmetic means adjusted to eliminate the effects of stark outliers

from page 11:

Revenue and earnings

What are CFOs’ expectations for their companies’ year-over-year revenue and earnings?

Revenue¹

Expectations bounced back somewhat, but are still among their survey lows; weakness is again evident across nearly all industries:

• Last quarter’s revenue growth expectations were 3.3%, only slightly above the 2Q15 survey low of 3.1% and well below the prior quarter’s 5.9%. This quarter’s expectations improved to 4.0%, but are still among the lowest levels in the survey’s history. The median expectation rose from a survey-low 3.0% to 4.0%, and just 72% of CFOs expect yearover-year gains (a new survey low). The distribution² of this quarter’s responses is among the widest on record.

• Country-specific expectations are 3.7% for the US (up from 3.3% last quarter), 3.1% for Canada (up from 2.2%), and 8.6% for Mexico (up from 4.5%).

• Industry expectations are mostly low, with Manufacturing lowest at 2.1% (up from 0.7% last quarter) and Energy/Resources at 3.1% (even with last quarter). Technology and T/M/E are the only industries above 6%, at 6.7% and 6.9%, respectively.

Earnings¹

Expectations improved across all geographies and recorded a substantial rebound in Manufacturing:

• This quarter’s earnings growth expectations came in at 7.7%, significantly above last quarter’s survey-low 6.0%. The median rebounded from 5.0% to 7.0%, but the percentage of CFOs expecting year-over-year gains fell from 79% last quarter to just 76%—a new survey low. The distribution² of responses was well above the two-year average.

• Country-specific expectations are 7.3% for the US (up from 6.4% last quarter), 9.4% for Canada (up from 4.2%), and 9.7% for Mexico (up from 3.1%).

• All industries expect positive growth, with Healthcare/Pharma and Energy/Resources highest at 11% and 10%, respectively. Manufacturing improved from 5% to 8%. Technology and Services are again comparatively low at around 6%.

[1] All averages have been adjusted to eliminate the effects of stark outliers.

[2] “Distribution” refers to the spread of the middle 90% of responses.

from page 13:

Employment

What are CFOs’ expectations for their companies’ year-over-year hiring?

Domestic hiring¹

Expectations rebounded to levels consistent with a year ago:

• Domestic hiring expectations rose to 1.1%, up from last quarter’s survey-low 0.6% and consistent with 2015 levels. The median rose from 0.0% to 1.0%, a bit above the survey average of 0.7%. The proportion of CFOs expecting gains rose from 47% to 55% and is back near the survey average. The distribution² of responses is about average compared to recent quarters.

• Country-specific expectations are 0.9% for the US (above last quarter’s 0.7%, but still at the second-lowest level in three years), 0.9% for Canada (up from – 0.9% last quarter), and 3.9% for Mexico (up from 2.7% last quarter).

• Technology, T/M/E, and Retail/Wholesale are highest at 3.2%, 2.7%, and 2.0%, respectively. Energy/Resources again indicated a contraction (-0.5%, which is about even with last quarter). Manufacturing and Services were also low, both with estimates below 0.5%.

Offshore hiring¹

Expectations declined and are again well below their long-term average:

• Offshore hiring growth fell to 1.8%, down slightly from last quarter’s 1.9% and the lowest level in three years. The median remains at 0.0%, and just 39% of CFOs expect year-over-year gains (down from last quarter’s 45%).

• Country-specific expectations are 1.9% for the US (up slightly from 1.8%), 0.0% for Canada (down from 2.8%), and 1.6% for Mexico (up from 0.4%).

• Technology again indicates the highest expectation at 4.0% (up from 3.4%), with Energy/Resources and Healthcare/Pharma the lowest at 0.0% and 0.5%, respectively.

Domestic wage growth¹

Expectations up significantly, possibly indicative of upward wage pressures:

• Domestic wage growth rose to 3.1%, up from last quarter’s 2.5%. The median held at 3.0%, and 96% of CFOs expect year-over-year gains.

• Country-specific expectations are 3.1% for the US (up from 2.5%), 2.2% for Canada (up from 2.1%), and 4.6% for Mexico (up from 4.1%).

• All industry-specific expectations are between 2.6% and 3.9% (versus 2.2% and 3.1% last quarter), with Energy/Resources and Healthcare/Pharma on the low end and Technology highest.

[1] All averages have been adjusted to eliminate the effects of stark outliers.

[2] “Distribution” refers to the spread of the middle 90% of responses.

Please see full report for industry-specific findings.

from page 15:

Most worrisome risks

Which external and internal risks do CFOs regard as most worrisome?

External concerns: Rising concerns about oil prices, the US economy, and politics:

Still-rising commodity price worries: After climbing significantly last quarter, worries about oil and other commodity prices continued to rise this quarter.

• Continuing concerns about broader global economic volatility: For the last two quarters, CFOs’ concerns appeared to shift from a specific focus on Europe and China to a more generalized focus on global economic stagnation and volatility. This trend largely continue this quarter, but was offset somewhat by rising concerns about the US economy.

• Sharply rising concerns about the US economy: Where last quarter’s rising concern was driven mostly by worries about the effects of struggling equity markets on consumer demand, this quarter’s rise appears driven by worries about US political and policy uncertainty as the 2016 elections approach.

• Sharply rising election and policy concerns: Regulatory concerns are again strong and industry dependent. US presidential election worries skyrocketed this quarter, with CFOs citing growing uncertainty around international trade, government spending, and tax policy.

• Declining concerns about financial markets: With equity markets having mostly recovered since last quarter’s survey, concerns about financial markets declined this quarter. Concerns about interest rates and a strong dollar continued, however, and worries about global debt levels (for both China and elsewhere) emerged as a growing concern.

Internal concerns: Rising concerns about growth

• Consistent talent challenges: Concerns around retention, an aging workforce, and leadership turnover continued this quarter.

• Escalating growth and execution concerns: CFOs voiced growing concerns about finding growth opportunities, executing their growth initiatives, innovating, and executing against their strategies and plans.

Among the various charts and graphics in the report are graphics depicting trends in “Own Company Optimism” and “Economic Optimism” found on page 6.

_____

I post various business and economic surveys because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with many of the consensus estimates and much of the commentary in these surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2036.09 as this post is written

June 2016 Duke/CFO Global Business Outlook Survey – Notable Excerpts

On June 8, 2016 the June Duke/CFO Global Business Outlook was released.  It contains a variety of statistics regarding how CFOs view business and economic conditions.

In this CFO survey, I found the following to be the most notable excerpts – although I don’t necessarily agree with them:

Forty-seven percent of U.S. companies say they will pull back on spending or hiring due to concern about the political situation. Nearly 40 percent of U.S. CFOs indicate that they believe that foreign businesses are less willing to do business with the U.S. due to political uncertainty.

also:

“While the recent disappointing headline non-farm payrolls grabbed a lot of attention, our survey shows the aggregate numbers miss a crucial point. U.S. companies rate difficulty hiring and retaining skilled employees as their second biggest concern – while last year it ranked fifth,” said Fuqua professor Campbell R. Harvey, a founding director of the survey. “Business leaders plan to increase their workforce by 2 percent over the next year, which would reduce the unemployment rate to levels not seen since the late 1960s. CFOs are telling us that expected wage increases (3.3 percent) greatly outpace expected increases in product prices (1.5 percent).

“The tight labor market, combined with a skills mismatch between what companies want and what they can get, makes wage inflation inevitable,” Harvey said. “This is exactly the type of data that will energize the Fed to be more aggressive in hiking interest rates – despite the recent setback in non-farm payrolls.”

The CFO survey contains two Optimism Index charts, with the bottom chart showing U.S. Optimism (with regard to the economy) at 59.4, as seen below:

Duke CFO Survey June 2016 Optimism

It should be interesting to see how well the CFOs predict business and economic conditions going forward.   I discussed past various aspects of this, and the importance of these predictions, in the July 9, 2010 post titled “The Business Environment”.

(past posts on CEO and CFO surveys can be found under the “CFO and CEO Confidence” tag)

_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2071.22 as this post is written

NFIB Small Business Optimism – May 2016

The May NFIB Small Business Optimism report was released today, June 14, 2016. The headline of the Small Business Economic Trends report is “Small Business Optimism Rises Modestly In May.”

The Index of Small Business Optimism increased .2 points in May to 93.8.

Here are some excerpts from that I find particularly notable (but don’t necessarily agree with):

The Index of Small Business Optimism rose two tenths of a point in May to 93.8, a negligible increase showing no real enthusiasm for making capital outlays, increasing inventories, or expanding, according to the National Federation of Independent Business (NFIB).

also:

INVENTORIES AND SALES

The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past 3 months compared to the prior 3 months deteriorated 2 percentage points to a net negative 8 percent, a poor reading and reflective of weaker consumer spending in Q1. Fourteen percent cited weak sales as their top business problem, up 3 points from April. Overall, this is not a strong sales picture. Seasonally adjusted, the next percent of owners expecting higher real sales volumes was unchanged at a net 1 percent of owners, a weak showing. This is well below the average 14 point reading in the first three months of 2015.

The net percent of owners reporting inventory increases deteriorated 1 point to a net negative 6 percent (seasonally adjusted), a weak reading. The net percent of owners viewing current inventory stocks as “too low” improved a point to a net negative 4 percent. The net percent of owners planning to add to inventory decreased 1 point to a net negative 1 percent. These weak inventory investment readings are consistent with the rather poor performance of consumer spending in the first quarter, leaving owners with excessive stocks and no incentive to add to them.

also:

CAPITAL SPENDING

Fifty-eight percent reported capital outlays, down 2 points. The percent of owners planning capital outlays in the next 3 to 6 months fell 2 points to 23 percent. Seasonally adjusted, the net percent expecting better business conditions increased 5 percentage points to a net negative 13 percent. The seasonally adjusted net percent expecting higher real sales was unchanged at 1 percent of all owners, not very strong. Clearly, expectations for the economy are not conducive to a meaningful improvement in business investment.

Here is a chart of the NFIB Small Business Optimism chart, as seen in the June 14 Doug Short post titled “NFIB: Small Business Survey Rises Modestly in May“:

NFIB Small Business Optimism Index

Further details regarding small business conditions can be seen in the full May 2016 NFIB Small Business Economic Trends (pdf) report.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2069.88 as this post is written

Corporate Profits As A Percentage Of GDP

In the last post (“1st Quarter 2016 Corporate Profits“) I displayed, for reference purposes, a long-term chart depicting Corporate Profits After Tax.

There are many ways to view this measure, both on an absolute as well as relative basis.

One relative measure is viewing Corporate Profits as a Percentage of GDP.  I feel that this metric is important for a variety of reasons.  As well, the measure is important to a variety of parties, including investors, businesses, and government policy makers.

As one can see from the long-term chart below (updated through the first quarter), (After Tax) Corporate Profits as a Percentage of GDP is at levels that can be seen as historically (very) high.  While there are many reasons as to why this is so, from a going-forward standpoint I think it is important to recognize both that such a notable condition exists, as well as contemplate and/or plan for such factors and conditions that would come about if (and in my opinion “when”) a more historically “normal” ratio of Corporate Profits as a Percentage of GDP occurs.  This topic can be very complex in nature, and depends upon myriad factors.  In my opinion it deserves far greater recognition.

(click on chart to enlarge image)

corporate profits as a percentage of GDP

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed May 27, 2016

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2093.73 as this post is written

1st Quarter 2016 Corporate Profits

Friday’s GDP release (Q1, 2nd Estimate)(pdf) was accompanied by the BLS Corporate Profits report for the 1st Quarter.

Of course, there are many ways to adjust and depict overall Corporate Profits.  For reference purposes, here is a chart from the St. Louis Federal Reserve (FRED) showing the Corporate Profits After Tax (without IVA and CCAdj) (last updated May 27, 2016, with a value of $1671.4 Billion):

Corporate Profits After Tax

Here is the Corporate Profits After Tax measure shown on a Percentage Change from a Year Ago perspective:

corporate profits after tax percent change from year ago

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Corporate Profits After Tax [CP]; U.S. Department of Commerce: Bureau of Economic Analysis; accessed May 27, 2016; https://research.stlouisfed.org/fred2/series/CP

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2096.80 as this post is written