MNI INTERVIEW: CFOs Gloomier, Still Hopeful -- Fed-Linked Poll
Sentiment among U.S. CFOs surveyed by Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta has turned bearish amid President Trump's push for higher tariffs, though firms are notably less gloomy than consumers and remain ready to hire and spend this year, survey director John Graham of Duke told MNI.
The quarterly CFO Survey's economic optimism index fell to 62.1 in the first quarter from 66.0 in the fourth, erasing nearly all gains from a post-election jump in the fourth quarter. By comparison, Trump's first term did not see a similar drop in optimism, which instead plateaued during the 2018-19 trade wars.
About a quarter of firms said changes to trade policy would negatively impact their hiring and their capital spending plans in 2025, according to the survey.
"Companies are still giving indications that they're still planning to hire and spend. A fourth said they’ll cut back on hiring and spending but three-fourths said they won’t. Their plan is to hire people this year. So that is the hope right now. There will be some pain but it won’t slump the entire economy," Graham said in an interview.
“There has been a surprising amount of underlying strength for the last few years. While that’s going to weaken now, the hope as reflected in the CFOs’ expectations is it won't be as good as it was but we will still muddle along."
INFLATION CONCERNS RISE
Almost a third of respondents wrote in "tariffs" when asked to list their concerns, a sharp increase from the fourth quarter and representing firms' current most pressing issue, Graham said. Inflation came in second, rising from its previous position as the third most cited worry after labor quality and availability and interest rates.
"Concern over interest rates and inflation were coming down the last few quarters and now it’s popped back up. If we have all these tariffs, the price of imported products sold will go up and will lead to higher inflation. People might purchase less which businesses don’t like. And it’ll make it less likely for the Fed to cut interest rates," Graham said. (See: MNI INTERVIEW: Tariff Inflation To Sideline Fed-Ex CEA Econ)
“Uncertainty” also made it to the top five concerns for the first time, a rare occurrence. "I don’t recall the last time that uncertainty has been this high," Graham said. "They don’t know what to plan for. If we all knew what tariffs will be in place in the third quarter and fourth quarter that’s one thing, but you don’t know whether to plan for high, medium or low tariffs, not to mention other changes."
REASONS FOR HOPE
CFOs revised downward their expectations for GDP growth over the next four quarters to 1.9% from 2.2% in the fourth quarter. The probability they assign to negative year-ahead economic growth nearly doubled to 14.2% from 8.5% last quarter, but remain below recession predictions out of other surveys, Graham noted.
"If you want to put a slight positive spin on this report, optimism has fallen but not nearly as much as consumer confidence has. The probability of recession is higher but not nearly as high as other groups," he said.
The share of firms planning equipment purchases over the next six months edged down just 2 pp to 61% compared to six months earlier, and those who said they plan to buy or renovate structures of land rose 1 pp to 37%.
About 40% of firms reported increasing spending outside of capital expenditures in the past three months, down just 1 pp from the fourth quarter. About 30% of firms said their spending was unchanged and another 30% reported decreased spending.
"Hopefully the CFOs are right, it'll be medium-bad rather than really bad."
