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Paradox: CFOs maintain optimism for North America, but not their own companies

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Expected growth in revenue and earnings at historic survey low; hiring expectations at lowest level in over a year.

According to a recent survey by professional services firm Deloitte, chief financial officers' long-term outlook for the North American economy remains strong despite their weakening confidence in their own companies' prospects. Lower expectations for growth in revenue, earnings, and domestic hiring appear to be behind this declining sentiment.

The survey recorded a 10th straight quarter of positive net optimism. However, this quarter's net optimism of plus 18.8% is one of the lowest levels in two years and is down significantly from last quarter's plus 34.4%. Moreover, the percentage of CFOs expressing rising optimism in their company's prospects fell to 38% from last quarter's 48%. Further, 65% of CFOs believe U.S. equity markets are overvalued, up from 46% in the previous quarter and represents the highest level in a year.

"CFOs are less optimistic about their own companies this quarter, in part due to uncertainty around the condition and trajectory of the U.S. economy."

The sharp decline in expectations for the survey's key performance metrics is perhaps the most revealing indicator of CFOs' changing sentiment in the second quarter. Revenue growth expectations are down to 3.1%, resulting in the lowest level in the survey's five-year history, from 5.4% last quarter. The Energy/Resources industry is a significant driver of lower expectations, falling to negative 2.5% from negative 0.2% last quarter, but all industries experienced a decline. Earnings expectations are at their lowest level in the history of the survey as well, dropping to 6.5% from 10.6% last quarter. Only Financial Services CFOs expect an increase in earnings this quarter. Domestic hiring expectations also fell to their lowest levels in over a year to 1.2% from 2.4% last quarter.

"CFOs are less optimistic about their own companies this quarter, in part due to uncertainty around the condition and trajectory of the U.S. economy," said Sanford Cockrell III, national managing partner, Deloitte LLP, and global leader of the Deloitte CFO Program. "The prospect of a pullback in the U.S. economy, possible interest rate increases and high equity valuations are among the most worrisome risks for CFOs this quarter."

The declining optimism in company prospects contrasts with CFOs' broader outlook on the North American economy. Fifty-nine percent of CFOs describe the North American economy as either good or very good, unchanged from last quarter.

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