Why CFOs have confidence in the midst of difficult economic times

Hosted by Neil Amato

CFOs have "a rising confidence in their ability to manage through these challenging times," according to Steve Gallucci, national managing partner for Deloitte's U.S. CFO Program. He explains more about why finance chiefs are concerned and why they have a sense of hope in the face of an economic downturn in the latest episode of the Journal of Accountancy podcast.

The conversation focuses on Deloitte's third-quarter CFO Signals report, with data from mainly large, public companies in the United States.

What you'll learn from this episode:

  • An overview of survey results.
  • What CFOs predict about the U.S. economy.
  • The specific concerns CFOs in the Deloitte survey have about inflation.
  • Why Gallucci said that CFOs are confident in their abilities.

Play the episode below or read the edited transcript:

— To comment on this episode or to suggest an idea for another episode, contact Neil Amato at


Neil Amato: Last week on the Journal of Accountancy podcast, we brought you an update on the sentiment of CFOs and other finance decision-makers from smaller, mostly private, companies in the Business and Industry Economic Outlook Survey. On this week's show, we're keeping the focus on CFOs but shifting it to those working for larger companies and how they feel about inflation, a potential recession, and the signal they're giving that could indicate a light at the end of the tunnel. That's all coming up after this word from our sponsor.

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Amato: This is Neil Amato and you're listening to the Journal of Accountancy podcast. A repeat guest on the show is Steve Gallucci, national managing partner for Deloitte's U.S. CFO Program. He's back to discuss how finance chiefs view the year ahead. Steve, first, welcome back to the JofA podcast.

Steve Gallucci: Thank you, Neil. It's pleasure to be with you.

Amato: Yeah, thank you. Good to have you back. I'm going to start with this. I summarize the sentiment of North American CFOs this way: They're calling for a bumpy 2023. One, is that a fair assessment to you for the coming 12 months?

Gallucci: Yeah, I think that captures it accurately, Neil. If I go back about a year ago, we began to see a bit of a pivot happening, a shift, if you will, where CFO sentiment became less and less optimistic. In the ensuing quarters per our survey data, when we asked them about key line items in their P&L, they were less and less optimistic about those, and we saw the statistics come down in this particular quarter.

What didn't hold up over time, however, was they continued to project growth and increasing growth in both their headcount, as well as wage labor. In this particular quarter, that also came down a bit. We also asked a series of questions about inflation and recession. By and large, one in two CFOs think we will be in a recession by 2023.

In terms of what are they more focused on, whether it'd be inflation or recession? While those are certainly connected, they're much more focused on inflation and managing through that. Back to your comment, your question, Neil. Yes, CFOs are taking steps to be able to manage through this downturn. There's not a clear consensus as to whether or not how long the downturn will last and how deep it will be.

Although we did get some data that would indicate that CFOs are starting to think that a year out, the economy will improve across many regions, which we can touch on if you'd like. But, yes, in general, bearing down for the latter half of 2022, and in '23, to manage through whatever challenges present themselves.

Amato: We will talk about some of that light at the end of the tunnel view in just a bit, and you hit on it that about half are forecasting a recession. There's a higher percentage, I think, almost 75% that are little more concerned about the impact of persistent inflation, which you touched on. What more can you tell us about the sentiment related specifically to inflation?

Gallucci: Well, inflation is a challenge that none of the CFOs that we polled or any of the C-suite for that matter, have really had to deal with before. The challenge presents itself in a number of different ways. Clearly, in an inflationary environment any certainty around what your cost structure is going to be is a challenge. In addition to that, pricing becomes a challenge.

As CFOs are thinking about that, and certainly to the extent that there are disputes that need to be made around capital structure and investments, there's less of a desire to move forward on things where there's more uncertainty than certainty. That is some of the challenges that we're seeing.

When we asked what steps CFOs are taking around the anticipation of a recession or a continuing inflationary environment, managing operating expenses are some of the things that they most often cited, followed quickly by steps around headcount and talent and the like. Those are some of the things that we're seeing CFOs do to ready their organizations to be able to manage through this.

Amato: I don't know if you have any detail on the steps around headcount. Is that more, hey, if we have open jobs, we're not filling them, or is there any specifics on that?

Gallucci: Not from this particular survey. I think there are a lot of different ways that CFOs and organizations can manage headcount. They can slow the growth of headcount. They could slow the growth of filling open positions. There clearly is continuing to be a lot of investment in technology. They've tried to automate a good amount of the processes within the finance organization.

I think they're availing themselves of all different options. We didn't get that specific as it relates to this particular survey in terms of what those steps are, but judging from what they cited, just overall managing operating expenses and focus in on talent are the two that are most often cited.

Amato: We mentioned it earlier. There are concerns, but the data shows that 29% think the economy will be better in a year, and that's up from the 18% three months ago who felt that way. What do you think is the reason that, I guess, what seems to be maybe a rise in optimism for the future?

Gallucci: Yeah, it's a good question. It's interesting that when we asked CFOs how they feel about the economy today, that has continued to slip. However, we saw a little bit of a rebound when we asked them, do we think things will improve in a year. That could be the result of a number of different things. One of the results is that the percentages that they think will be good in a year on quarter-on-quarter [comparison] had been very, very low.

Again speculating, there could be a sense that if we do go into a recession, again, one in two think we will, they feel that it will be more short term than long term. That could be the case. I think when you look at the three different regions that we focus on, which are North America, China, and Europe, the trend was consistent across all three, not surprising — we're asking the same respondents to answer all three — but at different levels of optimism.

So 29% of North American CFOs all believed that conditions in North America will improve in a year. Whereas when we asked that question about China, it was 27%, up from 19%, and Europe much lower, 11% up from 7%. But again, the trend in all three cases is that it is a rising optimism if you will. Still relatively low. Twenty-nine percent is only one in three. We'll continue to watch that.

I think there's also a sense amongst the CFO community that given the shocks to the system over the last couple of years, whether it be the pandemic, geopolitical challenges, supply chain, or inflation, a lot has been thrown at CFOs. I think they feel much better about their ability to manage through this downturn. In addition to that, the data would indicate that corporate balance sheets, much like personal balance sheets, are as strong as they have been for many, many years.

That helps in their confidence and being able to manage through this, too. Perhaps there's some hope in that. Perhaps they hope that it'll be a shorter downturn, and maybe that's coming through. But it was interesting to see those trends turn in all three of those. The other related statistic that I'd like to point out, we asked a question, is now a good time to take on risk?

In this particular quarter, again, that rose from the last quarter, although it's below our two-year average. Typically, roughly 50% of CFOs believe that any given point in time is a good time to take on risk. For the better part of last couple of years, that number was as high as 60%–70%. It got down into the 20s and 30s recently, but it's picked up a bit. Looking at that consistent with them thinking that the economy may improve in a year is just an interesting datapoint that we'll continue to focus on.

Amato: Yeah, exactly. Now, obviously, CFOs, they know their business better than anyone. On the topic of own-company outlook, what are they saying about how they expect their companies, as opposed to just the economy in general, to perform in the coming year?

Gallucci: Yeah. It's been cited before that CFOs tend to be a little more bullish about their own company's prospects and success than they are about the economy. You could certainly chalk that up to CFOs generally being more cautious, conservative, if you will, on things that they can control. Certainly, they can control a lot more of what happens within their own company than they can the broader economy.

In many cases, I think they're programmed to expect the worst and prepare for that. But again, I think it gets back to my point before about a rising confidence in their ability to manage through these challenging times. We've been through a challenging time over the last couple of years. By and large, enterprises and CFOs have risen to the occasion, if you will.

But I think it gets back to their confidence in how they're positioned from a capital structure perspective, what options they have available to them through whether it be pricing or filling supply chain gaps. They are continued to be challenged by talent, the changing talent model. That continues to be cited as the most worrisome, if you will, internal risk, along with inflation externally that CFOs are grappling with.

Amato: You've hit on a lot of the points in the survey. Are there any other key takeaways from it you'd like to share?

Gallucci: Yeah, I think the overall takeaway that I have is the trend has continued that CFOs believe that the economy will continue to worsen before it gets better. I think there's a threat of optimism around the economy improving in a year out. It'll be interesting to see next-quarter statistics to see if that trend would continue. Whether it's wishful thinking or something rooted in a more data-driven conviction.

I think there is a sense from a CFO community that they'll be able to manage through whatever gets thrown their way, and that they would not see this as something that will be a longer-term challenge. I think those are the two things that I'm most interested in seeing develop as we continue to sense with CFOs. I think anytime we get a percentage that is in the 70s, it's something that at least gains my attention.

When 73% of CFOs indicated they are more concerned around inflation than recession, I think that's a telling statistic. I think that's something that we'll certainly continue to have conversations with the CFO community about. Going back to my earlier point about being able to manage in an inflationary environment, it is not something that these folks have had to do before.

It frequently is a topic of conversation. We bring together CFOs for roundtables around things that they're doing and thinking about as it relates to trying to eliminate as many variables as possible as it relates to how inflation would impact their company.

Amato: Yeah, they've had plenty thrown at them, but you're right, this is totally new. Something that definitely bears watching for the next quarter and beyond. Steve, thanks very much. Anything you'd like to add in closing?

Gallucci: No, I appreciate it. I think it's an interesting time right now to be a CFO. It's a very interesting position that we're in to be able to sense what they're thinking and doing. The next year is certainly going to be a challenge. But if the signals that are being sent to us from the CFO community come to fruition, I think they're going to be quite successful in being able to take on what's before them.