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CFOs Weigh in on Largest Economic Opportunities and Threats in 2017

March 13, 2017

According to a recent survey, American CFOs expect lower tax rates and less regulatory red tape in 2017, but this doesn’t mean threats are absent.

At the end of 2016, the Duke University/CFO Magazine Global Business Outlook survey reported a 10% jump in CFO optimism over the third quarter. Why? The report cites expectations of pro-business tax and regulatory reforms as possible explanations for the rosier overall outlook. Here’s a closer look at what U.S. CFOs perceive as the biggest opportunities and threats in the year ahead.

Mounting Optimism

In 2016, the level of CFO optimism in the United States grew from a rating of 60.6 points in the third quarter to 66.5 points in the fourth quarter (on a 100-point scale). That’s the highest it’s been in nearly a decade.

At year end, 64% of CFOs were more optimistic about the U.S. economy than they had been at the end of September. (At the end of the third quarter, only about 27% of respondents reported increased optimism compared to the previous quarter.)

Growth Opportunities

Heading into 2017, lower tax rates and less regulatory red tape will free up cash, which many CFOs plan to spend on:

  • Hiring new workers,
  • Buying new equipment, and
  • Making capital investments.

About one in five companies have already announced hiring and spending plans since the election. However, most CFOs are taking a more measured, wait-and-see approach.

Overall, CFOs expect a modest 2% median growth rate for hiring and capital investments over the next year. (At the end of the third quarter, these expenditures were expected to flat-line.) According to the Duke University/CFO Magazine survey, the most optimistic industries include financial, health care, transportation and retail/wholesale.

Potential Threats

At the end of 2016, most CFOs supported an increase in interest rates by the Federal Reserve and didn’t expect interest rates to affect their spending plans. But companies in certain industries — such as manufacturing and energy — have become increasingly leveraged over the last five years. Those with variable-rate loans expressed concerns that rising interest rates could consume cash flow and restrict future investment.

Other major concerns include benefits costs, regulatory requirements and government policy. If those concerns persist, despite ongoing promises by President Trump and congressional Republicans to reform the Affordable Care Act and reduce burdensome regulations, CFOs might have reservations about whether the changes will happen — and if they’ll turn out to be as pro-business as they initially seemed.

Stay Tuned

What’s the #1 concern of CFOs today? Uncertainty. Though many are hopeful that 2017 will bring business-friendly market changes, nothing is certain. We’ll continue to track CFO optimism ratings as the year unfolds, along with any major tax and legal developments that will impact your business.

Questions? Contact us today.

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