Beyond Regime Uncertainty: Corporate CFOs Predict Worsening Future

Following on my recent post citing corporate CEOs’ complaint that continuing “Regime Uncertainty” forestalls their companies’ investing and hiring, corporate CFOs are today following suit, as reported by DeLoitte’s “CFO Signals“:

CFOs’ expectations for sales and earnings growth both dropped precipitously this quarter, and their expectations for capital investment and hiring followed suit. The presidential election and a fiscal cliff in the U.S. are clearly making CFOs nervous, but this quarter’s findings suggest there may be more to their trepidation than political or policy uncertainty.

One of the “Big Four” Professional Services firms, DeLoitte has for the past two and a half years conducted and released a quarterly survey tracking “the thinking and actions of leading CFOs – representing North America’s largest and most influential companies.” Its most recent survey was released today, and unfortunately contains the lowest expectations for growth in sales, earnings, and hiring over the next 12 months in the 10-quarter history of the survey.

It seems the last several years’ corporate performance, “which has held up quite well despite volatile economic conditions” has been largely a result of their companies’ ability to operate creatively:

Large companies have looked under every stone for ways to bolster their performance – better focus, scaling back in lower-margin businesses, and getting more efficient in both the front- and back-office – often with remarkable success….

…It may be the case that the levers capable of allowing companies to outperform their underlying economies have mostly been pulled – or at least that the strongest levers have – and that further gains are going to be even tougher to achieve.

Unfortunately, this means that we are now past the point at which an administration somehow managing to make businesses “feel” better about the future business environment (which President Obama’s demonization of business has not done) will no longer solve the problem, and the actual establishment of a regime conducive to economic prosperity—secure property rights; the rule of law rather than discretionary bureaucracy; and reasonable, predictable levels of regulation and taxes—will be required.

Unless there’s a sea change coming in policies from Washington, we all would thus be well advised to fasten our seatbelts. It’s going to be a bumpy ride.

Mary L. G. Theroux is Senior Vice President of the Independent Institute. Having received her A.B. in economics from Stanford University, she is Managing Director of Lightning Ventures, L.P., a San Francisco Bay Area investment firm, former Chairman of the Board of Advisors for the Salvation Army of both San Francisco and Alameda County, and Vice President of the C.S. Lewis Society of California.
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