TORONTO, ONTARIO -- (Marketwired) -- 06/27/13 -- Chief financial officers (CFOs) in Canada and the United States are feeling much better about the North American economy and believe it will continue to recover for at least another year, according to Deloitte's Q2 CFO Signals 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, which tracks the thinking and actions of CFOs representing North America's largest companies averaging more than $5 billion in annual revenue, 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 that optimism has carried into the second quarter since CFO Signals 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. About one-third of CFOs rate China's economy as good, but they are almost universally pessimistic about Europe.
"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 Q2 survey showed net optimism among Canadian CFOs jumping to +39 from +7 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 8.0 per cent, compared to 7.4 per cent and 11.8 per cent last quarter. They also 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.
For the first time in several quarters, CFOs did not cite political gridlock in Washington, DC as one of their top concerns. Instead, they're worried that governments may try to enact taxing and spending policies that could weaken consumer demand and have a negative impact on longer-term economic health. Despite this, many CFOs indicated they are no longer looking to hold cash as a risk hedge but to use it to invest, particularly in opportunities for organic growth, or to pay down debts, buy back stocks or pay dividends.
"The question of how companies best use their cash reserves has been keenly debated in recent months," noted Greg Dickinson, director, North American CFO Signals survey, Deloitte LLP. "Based on the latest view from CFOs, their optimism on the Northern American economies is translating into a renewed desire to spend cash on growth opportunities, rather than continue to stockpile cash for a turbulent economy. The preference remains for organic growth within their company, but CFOs clearly view the M&A market as a strong alternative as well."
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