CFOs Prepare For A Slowdown

Olivia Berkman

Most CFOs expect a U.S. economic downturn by the end of 2020 – though few expect an outright recession. Here are the steps they’re planning to take.

“We don’t see any recession on the horizon,” says William Dunkelberg, an economist at the National Federation of Independent Business. He also warned attendees at FEI’s Private Company Priorities conference in Washington D.C. to beware of consensus.

“Even though you see these numbers on the TV that say ‘consensus,’ it’s not a consensus. It’s an average. And we’re spread out all over the place on where we think the economy is going to go. If you have a scenario you want, I’ll find an economist who will deliver the forecast for you.”

Today’s CFOs seem to be in agreement with Dunkelberg, however. According to Deloitte’s 1Q19 CFO Signals Survey, CFOs overwhelmingly expect a U.S. downturn by the end of 2020, but few expect an outright recession.

Expectations of a slowdown are perhaps most fueled by strong concerns about trade policy and tariffs.

“I can’t emphasize enough the concern and the lack of clarity that CFOs have to deal with right now as it relates to the trade situation with China and others and the current state of tariffs,” said Sandy Cockrell, Deloitte Global CFO program leader.

“Almost all the CFOs that participate in the survey are from very large multinational companies. All of them have cross-border supply chains, whether they’re moving products and services and those type of things. Those supply chains get incredibly complicated to manage and forecast and plan for when you don’t know what tariffs will attach and how much those will be and when. What you expect your revenue to look like in the fourth quarter this year is highly dependent on unit pricing, and unit pricing will end up being a function of tariffs.”

Fewer than half of CFOs say they have defensive plans for a downturn, and as for offensive planning, just one-quarter cite a detailed plan. The most common defensive actions mentioned revolve around reducing discretionary spending and limiting or reducing headcount. According to the survey, 38% say that have already or plan to reduce their headcounts.

Headcount and talent issues continue to occupy the minds of CFOs. Though this quarter’s and last quarter’s findings indicate a shift toward external factors being the dominant constraint on companies’ performance, when it comes to internal risks, talent levels and quality of talent land at the top of the list. According the Cockrell, one of the principle drivers is new technology and digital capabilities.

“That is a big concern for CFOs today. Consider a financial organization, for example, where historically, the majority of your FTEs and capabilities are allocated to record-keeping and controlling functions with the goal of publishing accurate and transparent financial records. Today, that is shifting. Over the next few years, CFOs will see the vast majority of their workforce shift to an environment where nearly two-thirds of their people will be producing predictive and analytical products or services, which will ultimately support the business with forward-looking insights. On the other hand, only about one-third of people are going to be producing traditional financial statements.”

Of course, with new technology comes upskilling and training. “This is a tremendous shift which will likely require significant investment in new training and new technology. Companies will also have to invest in talent with the skills required,” says Cockrell.

And according to Dunkelberg, that’s a good sign. Dunkelberg told attendees that not only are plans to create jobs at record high levels among small businesses, but investment in training is also on the rise. “I take this as a very positive indicator about the future…We don’t do this unless we think there’s going to be a payoff. I think this is a real sign of optimism among the small business community.”

This article originally appeared on FEI Daily and is republished by permission.

Olivia Berkman

About Olivia Berkman

Olivia Berkman is the managing editor of FEI Daily, Financial Executives International’s daily newsletter delivering financial, business, and management news, trends, and strategies.