Tag Archives: Business

Deloitte “CFO Signals” Report Q1 2017 – Notable Aspects

Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 1st Quarter of 2017.

As seen in page 2 of the report, there were 132 survey respondents.  As stated:  “Each quarter (since 2Q10), CFO Signals has tracked the thinking and actions of CFOs representing many of North America’s largest and most influential companies. All respondents are CFOs from the US, Canada, and Mexico, and the vast majority are from companies with more than $1 billion in annual revenue. For a summary of this quarter’s response demographics, please see the sidebars and charts on this page. For other information about participation and methodology, please contact nacfosurvey@deloitte.com.”

Here are some of the excerpts that I found notable:

from page 3:

Perceptions

How do you regard the current/future status of the North American, Chinese, and European economies? Perceptions of the North American economy improved again, with 66% of CFOs rating current conditions as good (a four-year high) and 62% expecting better conditions in a year. Perceptions of Europe improved to 12% and 28%, while China rose to 20% and 19%. Page 6.

What is your perception of the capital markets? Eighty-one percent of CFOs say debt financing is attractive (up slightly from 79% last quarter), while attractiveness of equity financing held steady for public company CFOs (at about 40%) and rose for private company CFOs (from 29% to 38%). Eighty percent of CFOs now say US equities are overvalued—a new survey high. Page 7.

Sentiment

Compared to three months ago, how do you feel about the financial prospects for your company? Net optimism rose sharply from last quarter’s +23.4 to +50.0 (a survey high). About 60% of CFOs express rising optimism (up from 43%), and those citing declining optimism fell from 20% to 10%. Page 8.

Expectations

What is your company’s business focus for the next year? CFOs indicate a strong bias toward revenue growth over cost reduction (60% vs. 18%), and investing cash over returning it (59% vs. 15%). They shifted to a bias toward new offerings over existing ones (42% vs. 38%), and markedly increased their bias toward current geographies over new ones (67% vs. 13%). 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 3.7% to 4.3% and are slightly above their two-year average. Earnings growth rose to 7.3%, up from 6.4% and also above the two-year average. Capital spending growth skyrocketed from 3.6% to 10.5% (the highest level in almost five years). Domestic hiring growth rose from 1.3% to 2.1%. Page 10.

from page 8:

Sentiment

Net optimism—already fairly strong since 2Q16—rose sharply to a new survey high amid overwhelmingly positive sentiment among US CFOs.

This quarter’s net optimism spiked to a survey high +50. Nearly 60% of CFOs expressed rising optimism (up from 43% last quarter), and about 10% cited declining optimism (down from 20%).

Net optimism for the US rose sharply from last quarter’s already-strong +34 to +58 this quarter. Canada rose from +7 to +40, while optimism in Mexico slid from -64 to -71.

Healthcare/Pharma and Energy/Resources CFOs were among the most optimistic last quarter, but are among the least optimistic this quarter (joined by Retail/Wholesale). Financial Services CFOs were among the least optimistic last quarter, but are among the most optimistic this quarter, joined by Technology and Telecom/Media/Entertainment (T/M/E).

from page 10:

Expectations

All key growth metrics rose this quarter, with capital spending skyrocketing; the outlook for Healthcare/Pharma declined markedly, but the outlook for Manufacturing and Energy/Resources improved.

Revenue growth expectations rose to 4.3% and are slightly above their two-year average. US expectations rebounded from last quarter’s dismal level, while Mexico fell to a two-year low. Energy/Resources is near its two-year high, and Healthcare/Pharma fell to its survey low.

Earnings growth expectations of 7.3% are up significantly from last quarter and above their two-year average. The US improved, but Mexico declined again. Manufacturing is highest, hitting its highest level in two years; Healthcare/Pharma fell to its lowest level in more than three years.

Capital investment growth expectations of 10.5% are up drastically from last quarter and sit at their highest level in nearly five years. All countries improved significantly from last quarter. Manufacturing and Energy/Resources rose sharply, with both near their survey highs.

Domestic hiring growth rose from last quarter’s weak showing of 1.3% to 2.1% and is at its second-highest level in nearly two years. Canada is low, but up from last quarter. Manufacturing sits at a two-year high, but is lowest of the industries (despite strength in other metrics).

Among the various charts and graphics in the report are graphics depicting trends in “Own Company Optimism” on page 8 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 2352.66. as this post is written

March 2017 Duke/CFO Global Business Outlook Survey – Notable Excerpts

On March 15, 2017 the March 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:

Results also show that CFOs are feeling the most confident about economic growth than they’ve been in more than a dozen years, and they strongly support several of the president’s initiatives.

These findings and detailed analysis of tax and economic reforms are from the Duke University/CFO Global Business Outlook. The survey has been conducted for 84 consecutive quarters and spans the globe, making it the world’s longest-running and most comprehensive research on senior finance executives. This quarter, nearly 900 CFOs responded to the survey, which ended March 10. Results are for the U.S. unless stated otherwise.

also:

The Optimism Index jumped this quarter to 69 (on a 100-point scale), the highest level in 14 years and much higher than the long-run average of 60.

“The jump in business optimism is leading to strong hiring and spending plans for 2017,” Graham said. “Our analysis of past forecasts shows that the Optimism Index is an accurate predictor of GDP growth and employment over the next year.”

Sixty-one percent of U.S. firms plan to increase their payrolls in 2017, with an average increase of about 3 percent (median 1 percent). Wage hikes are expected to average nearly 4 percent. Capital spending is expected to increase 6 percent on average (median 3 percent), a notable improvement from flat or negative spending plans for most of 2016.

“There’s a disconnect here,” said Duke finance professor Campbell R. Harvey, founding director of the CFO Survey. “Despite the optimism, the high rate of employment growth and wages, and the substantial possibility of both corporate and individual tax cuts, CFOs have very pessimistic growth forecasts, where only 16.8 percent believe we can hit 3 percent growth in 2017. That is surprising.”

The CFO survey contains two Optimism Index charts, with the bottom chart showing U.S. Optimism (with regard to the economy) at 69, as seen below:

Duke CFO Optimism March 2017

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 2381.38 as this post is written

CEO Confidence Surveys 4Q 2016 – Notable Excerpts

On January 5, 2017, The Conference Board released the 4th Quarter Measure Of CEO Confidence.   The overall measure of CEO Confidence was at 65, up from 50 in the third quarter. [note:  a reading of more than 50 points reflects more positive than negative responses]

Notable excerpts from this January 5 Press Release include:

CEOs’ assessment of current economic conditions was considerably more optimistic, with close to 60 percent saying conditions were better compared to six months ago, up from just 17 percent last quarter. Business leaders’ appraisal of current conditions in their own industries also improved significantly, with 46 percent stating conditions in their own industries have improved versus only 21 percent in the third quarter.

CEOs’ short-term outlook for the U.S. economy also improved markedly, with approximately 67 percent expecting better economic conditions over the next six months, up from 25 percent last quarter. The outlook for their own industries was also more favorable, with 58 percent of CEOs anticipating an improvement over the next six months, compared to about 23 percent in the third quarter.

The Business Roundtable last month also released its CEO Economic Outlook Survey for the 4th Quarter of 2016.   Notable excerpts from the December 6, 2016 release, titled “Business Leaders:  Plans for Hiring Rise, Expectations for Sales Increase“ (pdf):

In their first GDP estimate for 2017, CEOs projected 2 percent growth next year. While the outlook for hiring is positive, the overall results suggest continued economic growth, albeit at a slow pace.

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 — rose by 4.6 points, from 69.6 in the third quarter to 74.2 in the fourth quarter. The Index remains below its historical average of 79.6.

CEO expectations for sales over the next six months increased by 4.5 points, and expectations for hiring increased by a more robust 14.8 points over last quarter. However, CEO plans for capital expenditures fell by 5.4 points relative to last quarter.

_____

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 2268.06 as this post is written

Deloitte “CFO Signals” Report Q4 2016 – Notable Aspects

Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 4th Quarter of 2016.

As seen in page 2 of the report, there were 137  survey respondents.  As stated:  “Each quarter (since 2Q10), CFO Signals has tracked the thinking and actions of CFOs representing many of North America’s largest and most influential companies. All respondents are CFOs from the US, Canada, and Mexico, and the vast majority are from companies with more than $1 billion in annual revenue. For a summary of this quarter’s response demographics, please see the sidebars and charts on this page. For other information about participation and methodology, please contact nacfosurvey@deloitte.com.”

Here are some of the excerpts that I found notable:

from page 3:

Perceptions

How do you regard the current/future status of the North American, Chinese, and European economies? Perceptions of North America have improved, with 43% of CFOs rating its economic health as good and 58% expecting improvement next year. Perceptions of Europe remain pessimistic at just 8% and 13%, while China rebounded slightly to 24% and 17%. Page 6.

What is your perception of the capital markets? Seventy-nine percent of CFOs say debt financing is attractive (down from 89% last quarter), while attractiveness of equity financing held steady for public company CFOs (at about 40%) and rose for private company CFOs (from 24% to 29%). Seventy percent of CFOs say US equities are overvalued—just under the survey high. Page 7.

Sentiment

Overall, what risks worry you the most? CFOs again mention global economic growth and government regulation. New for this quarter is uncertainly regarding the new US administration’s future actions, with CFOs voicing concerns about the possibility of protectionism hurting global trade, and about tax reform possibly slowing near-term business spending. Page 8.

Compared to three months ago, how do you feel now about the financial prospects for your company? This quarter’s net optimism rose from last quarter’s +19.7 to +23.4 (slightly above the two-year average). Forty-three percent of CFOs express rising optimism (up from 35%), and the proportion citing declining optimism rose from 16% to 20%. Page 9.

Expectations

What is your company’s business focus for the next year? CFOs indicate a bias toward revenue growth over cost reduction (45% vs. 31%), and investing cash over returning it (56% vs. 17%). CFOs again indicate a bias toward existing offerings over new ones (41% vs. 32%), current geographies over new ones (57% vs. 22%), and organic growth over inorganic (58% vs. 18%). Page 10.

Compared to the past 12 months, how do you expect your key operating metrics to change over the next 12 months? Revenue growth expectations fell from 4.2% to 3.7% and are near their survey lows. Earnings growth rose to 6.4%, above last quarter’s 6.1% but again near 1Q16’s survey-low 6.0%. Capital spending growth fell to 3.6% (well off the two-year average). Domestic hiring growth fell to 1.3% from 2.3%. Page 11.

from page 9:

Sentiment

Net optimism bounced back strongly over the last two quarters; this quarter’s net optimism rose again due to positive sentiment within the US.

This quarter’s net optimism remains strong at +23.4. Forty-three percent of CFOs expressed rising optimism (up from 35% last quarter), and 20% cited declining optimism (up from 16%).

Net optimism for the US rose sharply from last quarter’s +16 to +34 this quarter. Canada fell from +50 to +7, and optimism in Mexico fell sharply from +50 to -64.

Healthcare/Pharma, Telecom/Media/ Entertainment, and Energy/Resources are the most optimistic; Retail/Wholesale and Financial Services are the least.

from page 11:

Expectations

Key growth metrics remain near their survey lows. CFOs from the US and from the Financial Services and Retail/Wholesale industries weighed on the averages.

Revenue growth expectations of 3.7% are down from last quarter and are again among the lowest in the survey’s history. US expectations are the second-lowest in survey history (back to 2Q10), and Financial Services sits at its new survey low.

Earnings growth expectations of 6.4% are up slightly from last quarter, but still near their survey low. Healthcare/Pharma and Energy/Resources are the highest; Financial Services is lowest.

Capital investment growth expectations of 3.6% are down sharply from last quarter and are the second-lowest in survey history. The US came in at its second-lowest level. Retail/Wholesale expects negative growth, with about half of CFOs expecting a decline.

Domestic hiring growth fell from last quarter’s very strong showing of 2.3% to 1.3% and is slightly below its two-year average. Technology and Healthcare/Pharma are lowest.

Among the various charts and graphics in the report are graphics depicting trends in “Own Company Optimism” on page 9 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 2269.75 as this post is written

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

On December 7, 2016 the December 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:

For the last five quarters, the Duke University/CFO Global Business Outlook Optimism Index has hovered around the long-term average of 60 (on a 100-point scale). This quarter, post-election, the index jumped to 66, the highest level in nearly a decade. The proportion of CFOs becoming more optimistic outweighs those becoming more pessimistic by 4 to 1. Historically, a jump in the optimism index has predicted strong employment growth and rising GDP over the next year.

also:

U.S. firms plan to increase their payrolls by 2 percent in 2017 and expect a median increase in capital spending of 2 percent. While modest, spending is up from last quarter’s prediction of no growth.

The corporate sector faces increased financial risk due to a recent increase in borrowing. U.S. manufacturing firms increased their borrowing as a percentage of assets by one-third over the past five years; and energy firms levered up by two-thirds. More than 60 percent of the firms in these industries say that this high debt load will limit future corporate investment.

“Weak business spending has dampened economic growth during the past two years,” Graham said. “Finance chiefs tell us that any rebound in business spending will be muted because of debt loads at many firms that are already high.”

The CFO survey contains two Optimism Index charts, with the bottom chart showing U.S. Optimism (with regard to the economy) at 66, as seen below:

Duke CFO Survey 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 2247.93 as this post is written

Corporate Profits As A Percentage Of GDP

In the last post (“3rd 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 third 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)

U.S. after tax corporate profits as a percentage of GDP

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 29, 2016

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2199.17 as this post is written

3rd Quarter 2016 Corporate Profits

Today’s (November 29, 2016) GDP release (Q3, 2nd Estimate)(pdf) was accompanied by the BLS Corporate Profits report for the 3rd 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 November 29, 2016, with a value of $1693.9 Billion):

U.S. Corporate Profits After Tax

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

U.S. Corporate Profits 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 November 29, 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 2200.96 as this post is written

CEO Confidence Surveys 3Q 2016 – Notable Excerpts

On October 4, 2016, The Conference Board released the 3rd Quarter Measure Of CEO Confidence.   The overall measure of CEO Confidence was at 50, down from 52 in the second quarter. [note:  a reading of more than 50 points reflects more positive than negative responses]

Notable excerpts from this October 4 Press Release include:

CEOs’ appraisal of current economic conditions was less optimistic, with 17 percent saying conditions are better compared to six months ago, down from 21 percent last quarter. Business leaders’ assessment of current conditions in their own industries also moderated, with 21 percent stating conditions in their own industries have improved versus 30 percent in the second quarter.

CEOs’ short-term outlook for the U.S. economy held steady, with 25 percent expecting better economic conditions over the next six months, about the same as last quarter. The outlook for their own industries, however, was less favorable, with about 23 percent of CEOs anticipating an improvement over the next six months, down from almost 33 percent in the second quarter.

The Business Roundtable last month also released its CEO Economic Outlook Survey for the 3rd Quarter of 2016.   Notable excerpts from the September 12, 2016 release, titled “CEO Economic Outlook Suggests Continued Concerns Over Flat Economy“ (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 — declined by 3.9 points, from 73.5 in the second quarter to 69.6 in the third quarter. The Index remains below its historical average of 79.6. It remains well above 50, indicating continued economic expansion — although well below the full potential of U.S. economic growth.

According to the Business Roundtable third quarter 2016 CEO Economic Outlook Survey, CEO expectations for sales over the next six months declined by 9.3 points, while expectations for hiring declined by 3.4 points from last quarter. CEO plans for capital expenditures ticked up slightly by 0.8 point relative to last quarter.

In their fourth estimate of real GDP growth for 2016, CEOs expect 2.2 percent growth, a slight tick upward from their 2.1 percent estimate in the second quarter of 2016 and roughly in line with other well-regarded estimates.

_____

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 2153.74 as this post is written

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.

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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.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2149.85 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

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2173.94 as this post is written