CFOs in Canada and the United States are feeling much better about the North American economy and feel it will continue to recover for at least another year, according to a Deloitte survey.
That heightened optimism is leading CFOs to raise their domestic hiring expectations — even as they remain more muted in their expectations for sales and earnings growth, and to look to invest their accumulated cash in growth activities, rather than holding on to it as a hedge against risk.
The quarterly survey saw net optimism (the difference between the percent of CFOs expressing rising and falling optimism) improve to 46 in the second quarter from the 32 recorded last quarter.
While optimism has traditionally hit a peak in the first quarter each year, this marks the first time optimism has carried into the second quarter since the survey began in 2010. Much of this increased optimism can be traced to CFOs' improved expectations for the North American economy, particularly among U.S. CFOs.
The survey showed net optimism among Canadian CFOs jumping to 39 from seven last quarter, while U.S. CFOs' net optimism rose to 46 from 33. The latest survey also showed Canadian CFOs narrowing the gap in their expectations for sales and earnings growth, with sales growth now expected to be 4.9 per cent and earnings growth of eight per cent, compared to 7.4 per cent and 11.8 per cent last quarter.
"Canadian CFOs have recovered a lot of the positive sentiments they had before their last six months of very muted net optimism, but they're still less optimistic overall than their U.S. counterparts, which hasn't been the case traditionally," said Bill Cunningham, co-leader of Deloitte's CFO program in Canada. "But their increasing net optimism means they're now raising their growth expectations for domestic hiring, dividends and capital spending, even as they have somewhat reduced their expectations for sales and earnings growth."
The CFOs boosted their expectations for domestic hiring growth to 5.4 per cent compared to 3.5 per cent last quarter, and anticipate capital investment growth of 5.5 per cent after last quarter's predicted decline of 9.2. per cent.
Highlights from the CFO Signals survey also revealed the following results:
Environmental regulation concerns increase markedly. The percentage of CFOs citing environmental regulation as a top impediment to growth rose from 16 per cent to 27 per cent in the second quarter. CFOs in the energy and resources sector were the main reason for this, with 82 per cent of this group citing this concern.
Changes to risk management approach. In light of conditions over the past five years, CFOs confirmed their companies have taken strong steps to improve risk awareness and plan for risk events. Nearly 80 per cent of companies have raised the visibility of risk within their boards and executive teams, while more than 70 per cent have improved their ability to assess the probability and impact of risks.
CFOs may have a pay-driven incentive to buy back shares. CFO compensation increasingly reflects their broadening responsibility, with salaries impacted mostly by summary measures that reflect companies' income statement, balance sheet and equity markets performance. Profitability is still the dominant driver of CFOs' incentive-driven pay, followed by economic results, but earnings per share and share price were cited by nearly two-thirds of public company CFOs as having a moderate to strong influence. This could give CFOs a personal incentive to pursue share buyback.
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