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Rocky start to 2016 shakes CFOs' outlook

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Rocky start to 2016 shakes CFOs' outlook

Growth expectations for earnings and capital spending hit new lows, while domestic hiring expectations match previous survey low.

A Q1 survey of CFOs by professional services firm Deloitte reveals that a rocky start to 2016 in both global economic performance and equity market valuations has shaken chief financial officers' outlooks. Their expectations for revenue, earnings, capital spending and domestic hiring — tracked for 24 consecutive quarters by this survey — all declined, and are now at or near survey lows.

Revenue growth expectations fell to 3.3% from 5.9% last quarter, earnings growth expectations fell to a new survey low of 6.0% from 8.3% last quarter, capital spending expectations hit a new survey low of 1.7% from 4.9% last quarter, and domestic hiring growth expectations declined sharply to just 0.6%, from last quarter's 1.2% — matching the previous survey low.

While assessments of the North American economy had been a steadying influence for many quarters, those now appear to be faltering as well, with CFOs' confidence about the trajectory of that economy hitting its lowest level in three years. Additionally, CFOs' assessments of China hit another new survey low. Forty-one percent of CFOs now describe North American conditions as good (down from 55% last quarter), and only 36% expect better conditions in a year (down from 47% last quarter). Only 9% regard China's economy as good, and just 5% describe Europe's economy as good.

"This quarter marked a decidedly downward turn in CFOs' sentiment, and a rocky start to 2016 appears to have taken its toll on expectations for company prospects and confidence in major economic zones," said Sanford Cockrell III, national managing partner of the US CFO Program, Deloitte LLP. "If equity markets remain volatile, and if we continue to see uninspiring reports on the performance of major economic zones, we may continue to see low CFO confidence for some time."

The survey, which tracks the thinking and actions of more than 100 CFOs from large North American companies, has recorded 13 straight quarters of positive net optimism, but this quarter's reading of +1.7 declined significantly from last quarter's +10.7 and is at its lowest level since Q4 2012. In the same quarter one year ago, net optimism was recorded at +34.4.

"One difference this quarter seems to be CFOs' growing concern over how financial markets will react to unfavorable economic news and how consumers will react to volatile equity markets — and what longer-term effects will be on capital liquidity and consumer demand," said Greg Dickinson, director, Deloitte LLP, who leads the North American survey. "Past surveys have shown that election run-ups tend to have a rather negative impact on CFO confidence, and in previous election years, net optimism had turned negative into the third and fourth quarters."

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