The recent rebound in equity markets, the Fed’s decision to hold rates steady, new trade deals advancing and CEOs’ rising optimism may all be positive indicators for business, but the hundreds of CFOs polled by CFO Leadership May 5-7, as part of our CFO Confidence Index series, aren’t convinced companies will come out unscathed.
CFOs downgraded their 12-month outlook in Q2, expecting business conditions in the U.S. to fall to a 5.9 out of 10—on a scale where 1 is Poor and 10 is Excellent—from a 7.0/10 forecast in Q1.
“I believe we are going to see continued pressure on interest rates and inflation,” said Jeffrey Abraham, CFO of home builder Windsong Properties, when asked to explain his forecast (4/10).
“The potential impacts from tariffs and the uncertainty surrounding their implementation will continue to cause people to be hesitant to make higher dollar purchase decisions,” he said.
The last time our forward-looking indicator dropped below 6 was in Q4 of 2022, when CFOs viewed persistent inflation and the Fed’s monetary policy tightening as drivers of a potential recession in the near term.
Fears of a recession seem to be once again at the root of the declining optimism among CFOs, with 47 percent of the 103 CFOs polled this quarter saying they expect a recession within the next six months—47% of CEOs shared that forecast when polled by sister publication Chief Executive on May 7.
Despite the downgrade in CFOs’ 12-month outlook, a rating of 5.9 would still be an improvement from current conditions, which CFOs rate a 5.5—the lowest level recorded in the CFO Confidence Index’s five-year history.
“I think the tariffs will be painful in the beginning, but it will be well worth it in about a year from now,” said one of the CFOs polled.
“A lot of uncertainty in the markets related to tariffs and tax legislation,” echoed another CFO. “I expect this to be favorable in the end,” but the ability or inability of the Trump administration to resolve trade agreements and to extend tax cuts (at a minimum) will be key.
Some CFOs even note an uptick in activity due to the tariffs.
“We have more new customer inquiries for business at once than ever. I assume it has to do with the tariff issues since we are an American company,” said the CFO of a family-owned manufacturing company operating in the U.S. and Canada.
Overall, 52 percent of CFOs expect conditions to improve in the next 12 months, though several noted that it will be critical to resolve the tariff uncertainty sooner rather than later.
“We need some clarity on the tariff strategy by the middle of this second quarter. If the uncertainty carries through the second quarter, I see a slowdown in the second half of the year, as clients will pause, reduce or postpone their capital expenditures,” said Michael T. Picard, CFO of SWBR in Rochester, New York.
Navigating The Year Ahead
All this is, of course, affecting financial forecasts, and many CFOs revised the 12-month outlook for their respective companies in Q2:
- 72 percent forecast revenue to increase this year (down from 84 percent in Q1)
- 52 percent expect profits to increase (down from 68 percent in Q1)
- 49 percent plan to add to their headcount in 2025 (down from 57 percent in Q1)
- 35 percent plan to increase capex this year (down from 41 percent in Q1)
- 45 percent intend to add to their cash position, while 20 percent are increasing their debt levels (vs. 54 and 59 percent, respectively, in Q1)
To navigate the current environment successfully, CFOs say they conduct regular reforecasting and scenario planning (74 percent) and are exploring growth opportunities (68 percent). Fully half also said they are divesting products or businesses and refocusing on core markets.
About The CFO Confidence Index
Every quarter, CFO Leadership surveys hundreds of CFOs across America at organizations of all types and sizes to inform our CFO Confidence Index, a real-time and forward-looking tracker of CFO confidence in current and future business environments, as well as their forecast for their company’s revenue, profit, capex and cash/debt ratio for the year ahead. Learn more at CFOLeadership.com/cfo-confidence-index/
