With sales growth up, earnings growth up, and domestic hiring up, there is much in our partner Deloitte’s Q3 CFO Signals survey that should give everyone involved in business in North America confidence in having an excellent final quarter. Nine months of this year are already in the bag and it looks that most of the CFOs that participated in the survey are pleased with their improving financial performance. We can look forward to some excellent year-end results. I’ve noticed that the market analysts have been reporting that average earnings have been steadily improving at around 7%. If the next round of earnings results pushes that into double digits, then perhaps investors will get a rush of optimism that will finally give a much-needed boost to our languid stock market.
Perhaps the only issue that might be a cause for concern is the slight downturn in capital expenditure reported in the survey. Since 2008, many companies have built up significant amounts of cash on their balance sheets and interest rates have been low. So it’s not as though they haven’t got the funds available. At a time when companies are increasingly outsourcing manufacturing and moving IT systems into the cloud, investment initiatives that were previously CAPEX become OPEX, so perhaps this downturn in capital expenditure is irrelevant. I’d certainly like to hope so.
However, I have a sneaking suspicion that it’s a sign that companies are struggling to find significant opportunities for organic growth. Certainly many companies have been spending large amounts buying in their own stock as a way of returning surplus cash to investors. There has also been resurgence in M&A activity suggesting that perhaps companies currently prefer to grow by acquiring existing revenue streams.
So does it all come down to wavering consumer confidence? The survey shows that domestic hiring is up. However, many reports suggest that much of this is in low-paid and part-time positions, so that many consumers are still holding back on discretionary spending. The International Monetary Fund seems to be taking such a view, having recently cut back their growth forecast for 2014 down forty basis points to 3.3%. My guess is that it is this uncertainty about consumer and public spending that are giving US CFO’s concerns about the economic outlook “one year from now.”
But it’s not all bad news. A growth rate for the US economy of 3.3% is still better than that of many other global economies. And having contributed to what has been one of the fastest and most sustained economic recoveries anywhere in the world, our CFOs have reason to celebrate. Check out the Deloitte infographic for more of the results.