Category Archives: Business

Deloitte “CFO Signals” Report Q4 2018 – Notable Aspects

Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 4th Quarter of 2018.

As seen in page 2 of the report, there were 147 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 [email protected]

Here are some of the excerpts that I found notable:

from page 3:

Perceptions

How do you regard the status of the North American, European, and Chinese economies? Perceptions of North America declined, with 88% of CFOs rating current conditions as good (down from 89% last quarter), and 28% expecting better conditions in a year (down from 45%, and a five-year low). Perceptions of Europe declined markedly to 23% and 7% (from 32% and 23%), and China also declined sharply to 24% and 12% (from 37% and 27%). Page 6.

What is your perception of the capital markets? A four-year-low 62% of CFOs say debt financing is attractive (73% last quarter). Attractiveness of equity financing fell for public company CFOs (from 42% to 35%) and also for private company CFOs (53% to 37%). Sixty-five percent of CFOs now say US equities are overvalued—down from last quarter’s 71%. Page 7.

Sentiment

Overall, what risks worry you the most? Following the US midterm elections, external risks have become an even stronger focus. CFOs express concerns about trade policy and political turmoil, and rising worries about economic growth. Talent is again the top internal concern. Page 8.

Compared to three months ago, how do you feel about the financial prospects for your company? The net optimism index fell drastically from last quarter’s +36 to just +3 this quarter—the lowest reading in nearly three years. Just 26% of CFOs express rising optimism (48% last quarter), and 23% express declining optimism (12% last quarter). Page 9.

Expectations

What is your company’s business focus for the next year? CFOs indicate a smaller bias toward growth over cost reduction (50% vs. 21%) and a lower bias toward investing cash over returning it (48% vs. 18%). The bias toward current offerings over new ones shifted toward new (43% vs. 40%), and the bias toward current geographies over new ones decreased (60% vs. 17%). 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 declined from 6.1% to 5.5%, and earnings growth declined from 8.1% to 7.3% (their lowest levels in one and two years, respectively). Capital investment slid from 9.4% to just 5.0% (the lowest level in two years). Domestic hiring rose from 2.7% to 3.2% (matching its survey high). Dividend growth fell from last quarter’s very high 7.4% back to 4.5% (the two-year average). Page 11.

Special topic: Economic, capital markets, and company expectations

What are your expectations for the macroeconomy in 2019? The vast majority of CFOs do not expect the US, Canadian, or Mexican economies to improve, and 55% expect a US recession by 2020. Expectations for business spending declined sharply, and those for labor costs rose. Page 12.

from page 9:

Sentiment

Optimism regarding own-companies’ prospects

Optimism plummeted to its lowest level in nearly three years, with all countries registering some of their lowest-ever readings. CFOs citing declining optimism nearly matched the proportion citing rising optimism.

Net optimism declined very sharply, from last quarter’s +36 to just +3—the lowest reading since 1Q16, and the third straight decline. Just 26% of CFOs expressed rising optimism (down from 48%), and 23% cited declining optimism (up from 12%).

Net optimism for the US reached its lowest point since 1Q16 at +9. Canada fell to a new survey low at -36, and Mexico fell to its lowest point since 1Q17 at -43. 

Sentiment declined for nearly all industries. The strongest gains were in Technology, which rose from +17 to +25 following last quarter’s sharp decline. Sentiment fell most sharply in Manufacturing (to a 7-year low), Healthcare/Pharma, and Services.

Please see the full report for charts specific to individual industries and countries.

from page 11:

Expectations

Growth in key metrics, year-over-year

Expectations for sales, earnings, and capital spending declined and are at or below their two-year averages. Expectations for hiring and wages rose. Retail/Wholesale and Technology are the relative bright spots.

Revenue growth declined from 6.1% to 5.5%, even with its two-year average. All three countries declined to their lowest levels in a year, with the US and Mexico still above their two-year averages and Canada below. Technology and Energy/Resources lead; Manufacturing and Healthcare/Pharma trail.

Earnings growth declined from 8.1% to 7.3%, its lowest level since 4Q16. The US fell below its two-year average. Canada fell to its lowest level since 3Q15, and Mexico rose slightly. T/M/E and Technology are highest; Financial Services and Healthcare/Pharma are lowest.

Capital spending growth declined sharply from 9.4% to 5.0%, a two-year low. The US and Mexico fell to their lowest levels since 4Q16; Canada declined sharply to its lowest level in a year. Retail/Wholesale and Services are highest; Energy/Resources and Manufacturing are lowest.

Domestic personnel growth rose from 2.7% to 3.2%, again above its two-year average. The US rose to just below its survey high. Canada rose to well above its two-year average; Mexico rose to an eight-year high. Retail/Wholesale and Technology lead; Financial Services and T/M/E trail.

Dividend growth declined sharply from 7.4% to 4.5%, erasing last quarter’s marked uptick.

Please see the full report for charts specific to individual industries and countries.

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 site 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 2596.64 as this post is written

CEO Confidence Surveys 4Q 2018 – Notable Excerpts

On January 3, 2019, The Conference Board released the 4th Quarter Measure Of CEO Confidence.   The overall measure of CEO Confidence was at 42, down from 55 in the third quarter. [note:  a reading of more than 50 points reflects more positive than negative responses]

Notable excerpts from this January 3, 2019 Press Release include:

CEOs’ assessment of current economic conditions turned pessimistic in the fourth quarter, with only 21 percent saying conditions are better compared to six months ago, down from 49 percent last quarter. Meanwhile, about 39 percent say conditions are worse, up from less than 8 percent in the prior quarter. CEOs were also much more negative about current conditions in their own industries compared to six months ago. Now, just 21 percent say conditions are better, down from 31 percent last quarter, while those who say conditions have worsened rose to 35 percent, up from 25 percent last quarter.

Looking ahead, CEOs’ expectations regarding the economic outlook have also turned negative. Now, just 12 percent expect economic conditions to improve over the next six months, down from 23 percent in the third quarter. Meanwhile, about 54 percent expect economic conditions will worsen, compared to 22 percent last quarter. CEOs’ expectations regarding short-term prospects in their own industries over the next six months were also more pessimistic. Now, only 14 percent anticipate an improvement in conditions, down from 22 percent last quarter, while 44 percent expect conditions to worsen, up from 19 percent in the third quarter.

Last month, the Business Roundtable also released its CEO Economic Outlook Survey for the 4th Quarter of 2018.   Notable excerpts from the December 7 release, titled “Business Roundtable CEO Economic Outlook Remains Strong“:

Declining 4.9 points from 109.3 in the third quarter of 2018, the Q4 2018 CEO Economic Outlook Index of 104.4 ranks among the top 10 percent of all readings in the survey’s 16-year history and is well above the historical average of 82.1. This is the eighth straight quarter where the Index has exceeded its historical average, signaling a continued positive direction for the U.S. economy.

also:

In their first estimate of 2019 U.S. GDP growth, CEOs projected 2.7 percent growth for the year ahead.

Additional details can be seen in the sources mentioned above.

_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site 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 2584.96 as this post is written

December 2018 Duke/CFO Global Business Outlook Survey – Notable Excerpts

On December 12, 2018 the December 2018 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 press release, I found the following to be the most notable excerpts – although I don’t necessarily agree with them:

Nearly half (48.6 percent) of U.S. CFOs believe that the nation’s economy will be in recession by the end of 2019, and 82 percent believe that a recession will have begun by the end of 2020. 

also:

In 2019, CFOs expect sub-3% growth for the U.S. economy, with accompanying capital spending and employment growth of about 3 percent. 

also:

Moreover, their forecasts are skewed to the downside, with a one-in-ten chance that annual real growth will be a meager 0.6 percent. In this worst-case scenario, CFOs would expect their capital spending to fall by 1.3 percent and for hiring to remain flat.

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:

CFO 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 site 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 2664.75 as this post is written

NFIB Small Business Optimism – November 2018

The November NFIB Small Business Optimism report was released today, December 11, 2018. The headline of the Economic Trends report is “Small Business Optimism Remains Historically HIgh In November.”

The Index of Small Business Optimism decreased in November by 2.6 points to 104.8.

Here is an excerpt that I find particularly notable (but don’t necessarily agree with):

Small business optimism posted a modest decline in November with a reading of 104.8, while continuing its exceptionally strong two-year trend, according to the NFIB Small Business Optimism Index. Slightly more than half of the decline was attributable to Expected Business Conditions and Expected Real Sales. Increases in compensation tied a near 30-year high as owners seek to attract more qualified candidates. An increasing percentage of owners reported capital outlays and higher sales.

Here is a chart of the NFIB Small Business Optimism chart, as seen in the December 11 Doug Short post titled “NFIB Small Business Survey…“:

NFIB Small Business Optimism Survey

Further details regarding small business conditions can be seen in the full November 2018 NFIB Small Business Economic Trends (pdf) report.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2646.95 as this post is written

Corporate Profits As A Percentage Of GDP

In the last post (“3rd Quarter 2018 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)

Corporate Profits As A Percentage Of GDP

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 28, 2018

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2729.03 as this post is written

3rd Quarter 2018 Corporate Profits

Today’s (November 28, 2018) GDP release (Q3 2018,Second Estimate)(pdf) was accompanied by the Bureau of Economic Analysis (BEA) Corporate Profits report (Preliminary Estimate) 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 28, 2018, with a value of $1975.665 Billion SAAR):

After-Tax Corporate Profits

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

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 28, 2018; 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 site 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 2729.34 as this post is written

CEO Confidence Surveys 3Q 2018 – Notable Excerpts

On October 4, 2018, The Conference Board released the 3rd Quarter Measure Of CEO Confidence.   The overall measure of CEO Confidence was at 55, down from 63 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’ assessment of current economic conditions is less positive, with 49 percent saying conditions are better compared to six months ago, down from 74 percent last quarter. However, 43 percent of CEOs say conditions have remained the same, and only 8 percent say conditions are worse. CEOs were also less optimistic about current conditions in their own industries compared to six months ago. Now, about 31 percent say conditions are better compared to 51 percent last quarter.

Looking ahead, CEOs’ expectations regarding the economic outlook are also less optimistic than last quarter. Now, just 23 percent expect economic conditions to improve over the next six months, compared to 48 percent in the second quarter. About 22 percent expect economic conditions will worsen, compared to 14 percent last quarter. CEOs’ expectations regarding short-term prospects in their own industries over the next six months were also less optimistic. Now, only 22 percent anticipate an improvement in conditions, down from 42 percent last quarter. Some 19 percent expect conditions to worsen, up from just 9 percent in the second quarter.

Last month, The Business Roundtable also released its CEO Economic Outlook Survey for the 3rd Quarter of 2018.   Notable excerpts from the release, titled “Business Roundtable CEO Economic Outlook Index Remains Strong, Declines Slightly in Q3“:

The Q3 2018 CEO Economic Outlook Index was 109.3, a decline of 1.8 points from 111.1 in the second quarter of 2018. At 109.3, the Q3 Index is the fifth-highest in the survey’s 16-year history and well above the historical average of 81.6. This is the seventh straight quarter where the Index has exceeded its historical average, signaling a continued positive direction for the U.S. economy.

also:

In their fourth estimate of 2018 U.S. GDP growth, CEOs projected 2.8 percent growth for the year, up slightly from their 2.7 percent estimate in the second quarter.

Additional details can be seen in the sources mentioned above.

_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site 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 2888.02 as this post is written

Deloitte “CFO Signals” Report Q3 2018 – Notable Aspects

Recently Deloitte released their “CFO Signals” “High-Level Summary” report for the 3rd Quarter of 2018.

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 [email protected].”

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, European, and Chinese economies? Perceptions of North America declined, with 89% of CFOs rating current conditions as good (down from the survey high of 94% last quarter), and 45% expecting better conditions in a year (down from 52% and lowest in two years). Perceptions of Europe declined significantly to 32% and 23%, from 47% and 36%, respectively, and China declined to 37% and 27% from 55% and 31%. Page 6.

What is your perception of the capital markets? Seventy-three percent of CFOs say debt financing is attractive (same as last quarter). Attractiveness of equity financing increased for public company CFOs (from 36% to 42%) and for private company CFOs (from 45% to 53%). Seventy-one percent of CFOs now say US equities are overvalued—up from last quarter’s 63%. Page 7.

Sentiment

Overall, what risks worry you the most? CFOs express strong external concerns about geopolitical and economic events (especially around trade policy and interest rates). Similar to last quarter, they cite pressures to execute on their growth plans, voicing growing internal concerns about driving initiatives, and finding talent. Page 8.

Compared to three months ago, how do you feel about the financial prospects for your company? The net optimism index fell from last quarter’s +39 to +36 this quarter. Forty-eight percent of CFOs express rising optimism (same as last quarter), and 12% express declining optimism. Page 9.

Expectations

What is your company’s business focus for the next year? CFOs indicate a declining bias toward revenue growth over cost reduction (59% vs. 20%) and a slightly lower bias toward investing cash over returning it (56% vs. 19%). The bias toward current offerings over new ones shifted back to current offerings this quarter (43% vs. 37%), and the bias toward current geographies over new ones increased somewhat (67% vs. 16%). 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 declined from 6.3% to 6.1%. Earnings growth declined from 10.3% to 8.1%. Capital investment slid from 10.4% to 9.4%. Domestic hiring fell from 3.2% to 2.7%. Dividend growth rose sharply from 4.8% to 7.4% (highest level in eight years). Page 11.

from page 9:

Sentiment

Optimism regarding own-companies’ prospects

After hitting a new survey high in 1Q18, net optimism fell for the second consecutive quarter—despite a sharp increase in optimism in Mexico; Services and Healthcare/Pharma improved, and Technology declined sharply.

Own-company optimism

Net optimism declined for the second straight quarter after hitting a new high in 1Q18. This quarter’s net optimism declined to +36 from +39, reaching its lowest level since 3Q17. CFOs expressing rising optimism remained unchanged from last quarter (48%), while CFOs citing pessimism increased to 12% (up from 9%).

Net optimism for the US declined from +42 last quarter to +35 this quarter, below the two-year average. Canada declined from +33 to +27, while Mexico rose sharply from zero to +67—the highest level in four years.

Sentiment was particularly strong in Services (+75, a new high) and T/M/E (+50).

Healthcare/Pharma rose sharply from -33 to +33, while Technology declined sharply from +52 to +17.

Please see the full report for charts specific to individual industries and countries.

from page 11:

Expectations

Growth in key metrics, year-over-year

Coming off multi-year highs, most key growth metrics declined, but remained strong. Mexico led growth expectations (similar to last quarter), and Canada lagged. Dividends rose sharply, driven largely by Retail/Wholesale and Energy/Resources.

Revenue growth declined from 6.3% to 6.1%, but remains at one of the highest levels in the last four years.

Earnings growth declined from 10.3% to 8.1%, the lowest level this year. The US declined, falling below its two-year average. Canada fell sharply to its lowest this year; Mexico also fell sharply, in line with its three-year average. Technology and Retail/Wholesale are highest; Energy/Resources and Services are lowest.

Capital investment declined from 10.4% to 9.4%, the second consecutive decline, but remains above the two-year average. The US fell from recent highs, but remains above its two-year average. Canada rose sharply and is above its twoyear average; Mexico rose sharply to its third highest level in the last six years. Energy/Resources and Retail/Wholesale are highest, Healthcare/Pharma and T/M/E are lowest.

Domestic personnel growth fell from 3.2% to 2.7%, but remains above its two-year average.

Dividend growth rose sharply from 4.8% to 7.4%, the highest level in eight years. The US rose to an eight-year high; Mexico rose to a four-year high; and Canada remained the same. Retail/Wholesale and Energy/Resources lead; Technology and T/M/E trail.

Please see the full report for charts specific to individual industries and countries.

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 site 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 2925.07 as this post is written

September 2018 Duke/CFO Global Business Outlook Survey – Notable Excerpts

On September 12, 2018 the September 2018 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 press release, I found the following to be the most notable excerpts – although I don’t necessarily agree with them:

The proportion of firms indicating they are having difficulty hiring and retaining qualified employees is at a two-decade high, with 53 percent of CFOs calling it a top four concern. That’s up sharply from the 41 percent who said the same thing last quarter.  “The tight labor market continues to put upward pressure on wages,” said Chris Schmidt, senior editor at CFO Research. “Wage inflation is now a top five concern of U.S. CFOs.” Employees are willing to leave their jobs for greener pastures. Over the past 12 months, U.S. CFOs report they had to replace 14 percent of their workforces, compared to 13 percent turnover in 2016.  Among companies that list hiring as a top concern, 56 percent have increased salaries to improve their chances of hiring and retaining workers; 31 percent have increased HR budgets to better advertise positions; 29 percent have increased vacation or flex hours; and 21 percent have improved health care benefits.

also:

The Optimism Index about the U.S. economy declined to 70 this quarter, compared to an all-time high of 71 last quarter, on a 100-point scale. CFO optimism about their own firms’ financial prospects increased to 71.4, the highest level since 2007. Optimism fell in Africa, Europe, and Latin America and held steady in Asia. The survey’s CFO Optimism Index is an accurate predictor of future hiring and overall GDP growth.

The CFO survey contains two Optimism Index charts, with the bottom chart showing U.S. Optimism (with regard to the economy) at 70, as seen below:

Duke CFO 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 site 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 2893.98 as this post is written

NFIB Small Business Optimism – August 2018

The August NFIB Small Business Optimism report was released today, September 11, 2018. The headline of the Economic Trends report is “Small Business Optimism Shatters Record Previously Set 35 Years Ago.”

The Index of Small Business Optimism increased in August by .9 points to 108.8.

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

The August survey showed:

  • Job creation plans and unfilled job openings both set new records.
  • The percentage of small business owners saying it is a good time to expand tied the May 2018 all-time high.
  • Inventory investment plans were the strongest since 2005 and capital spending plans the highest since 2007.

also:

A net 10 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months compared to the prior three months, up two points. August is the ninth consecutive strong month of reported sales gains after years of low or negative numbers. The net percent of owners planning to build inventories rose six points to a record net 10 percent, the 14th positive reading in the past 22 months. The frequency of reports of positive profit trends rose two points to a net one percent reporting quarter on quarter profit improvements, the second highest reading in the survey’s 45-year history.

Here is a chart of the NFIB Small Business Optimism chart, as seen in the September 11 Doug Short post titled “NFIB Small Business Survey:  Small Business Optimism…“:

NFIB Small Business Optimism

Further details regarding small business conditions can be seen in the full August 2018 NFIB Small Business Economic Trends (pdf) report.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2883.37 as this post is written