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CFO SignalsTM: 2010 Q3 Results

The tide is turning toward pessimism, but not for everyone


One clear message from our second quarter survey was that, despite considerable uncertainty, CFOs were predominantly optimistic about the futures of their companies. Although still present, this sentiment is not as strong as it was in our previous survey. 

Last quarter, nearly two-thirds of CFOs were more optimistic than the quarter before and only 17% were less optimistic. This quarter, only 47% are more optimistic and 36% are less optimistic. 

The primary reason: much more somber assessments of what’s happening in companies’ external business environments. This change in optimism is apparent at an industry level as well, where 25% are now more optimistic about their industries (versus more than 50% last quarter) and 35% are more pessimistic (versus 13% last quarter). 

Survey findings - High-Level Summary and Full Report - available via PDF at the end of this page.

Sobering Global Economic Conditions

Since the last survey, sluggish consumer spending, declining effects of government stimulus, and stagnant job markets in the U.S. (and across most of North America), have contributed to a slowing economic recovery and volatile equities markets. Sovereign debt crises and a weakening Euro have changed the economic landscape in Europe, and China’s tightening of monetary policy has raised further fears that global economic growth will slow. 

Coming to Grips with Slowdown Implications 

Unemployment, which wasn’t at the top of many lists of concerns last quarter, jumped to the top of this quarter’s concerns. Contributing to this sentiment is U.S. unemployment approaching double digits and housing prices down roughly 30% from their peak in 2006. 

Worries about the impact of unemployment and housing prices on consumer spending are reflected in companies’ increasing focus on revenues. CFOs’ concerns about raising and maintaining demand jumped this quarter, with revenue growth getting a larger share of their strategic focus. 

Competition for revenues also seems to be heating up, with growing concerns about pricing trends, new competitive tactics, M&A, and the success of new initiatives.

With the slowdown of global economies has come increased fear of a volatile or prolonged recovery. The good news is that CFOs don’t consider a “W,” or “double-dip,” recovery a likely scenario in their business planning (only 9% do). The “less-good” news is that they don’t generally expect the faster recoveries associated with a “V” or a “U,” either. More than half expect a “bathtub” shaped recovery (a “U” with a wider bottom). One in 10 expects an “L” recovery, essentially a “bathtub” recovery with a climb so gradual that it’s hard to see. 

All eyes are still on government, both because of the effects policy will ultimately have on the broader economy, but also because of the effects it will have on competitive environments within and across industries.

Still Optimistic, but for how much Longer? 

Despite rising worries about the economy, CFOs in this survey are still expecting growth on the whole. Year-over-year sales and earnings are expected to increase roughly. CFO optimism is also visible in year-over-year dividend growth and capital spending growth expectations, but employment growth appears to be leveling off for both domestic and overseas personnel. Some industries are now expecting reductions.

Little concern about debt and liquidity 

While they are rightly concerned about a lot of things, CFOs –at least those of the large companies included in our survey –are not overly concerned about debt and liquidity. Fewer than one-third place capital availability and cost in their top three economic concerns. Only one in 10 CFOs names sourcing capital a top three company challenge. Fewer than half of CFOs indicate they have debt-reduction strategies, and those who do expect to rely most heavily on cash reserves and operating cash flows (rather than asset sales and equity offerings).

The Blurry Road Ahead 

Very high variability in CFO expectations, both within and across industries, makes it even harder than normal to anticipate what might happen next at a broader economic level. Whom should we believe –those whose optimism is still rising, or those who are becoming considerably more pessimistic? 

As employment and economic recovery sputter, pessimism seems to be gaining more momentum than optimism does. Are the pessimists just the first to reach the top of the rollercoaster and see the decline ahead? 

An equally strong argument might be made for why a substantial portion of companies will not only survive but thrive during a period of cheap capital, effective austerity measures, and substantial long-term growth opportunities (both organic and inorganic). Could this be a retrenchment and strengthening period that leads to bigger and better things for some companies? 

Perhaps we are seeing the early stages of a bifurcation of the business environment, where large, healthy companies with superior capital access and costs will have a substantial competitive advantage over those who do not.

Read the attachments below for complete insights; Full Report and Highlights.

About CFO SignalsTM: 2010 Q3 Survey

The CFO SignalsTM survey was conducted for the third quarter, 2010. 70% of the CFO respondents are from companies with more than $1 billion in annual revenues, and 75% are from publicly-traded companies.

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All participating CFOs have agreed to have their responses aggregated and presented. 

Please note that this is a “pulse survey” intended to provide CFOs with quarterly information regarding their CFO peers’ thinking across a variety of topics; it is not, nor is it intended to be, scientific in its number of respondents, selection of respondents, or response rate – especially within individual industries. Accordingly, this report summarizes findings for the surveyed population but does not necessarily indicate economy- or industry-wide perceptions or trends. Except where noted, we do not comment on findings for segments with fewer than ten respondents. Please see the appendix in the attachment for more information about survey methodology. 

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, tax, legal, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decisions that may affect your business, you should consult a qualified professional advisor. 

As used in this document, “Deloitte” means Deloitte & Touche LLP and Deloitte Services LP, separate subsidiaries of Deloitte LLP. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

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