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Speaking of the Economy
Speaking of the Economy - Sonya Waddell, Brent Meyer, John Graham
Speaking of the Economy
April 14, 2021

The CFO Survey: A Window into the Past and the Future

Audiences: Business Leaders, Economists, General Public, Policymakers

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Hear the latest results of the CFO Survey and learn more about what makes the survey unique from three members of the team that produces it each quarter. Sonya Waddell is a vice president and economist at the Richmond Fed. She manages the Regional and Community Analysis team within the Research Department. Brent Meyer is a policy adviser and economist at the Federal Reserve Bank of Atlanta and leads the Bank's Economic Survey Research Center. John Graham is a finance professor at Duke University and is director of the CFO Survey.



Charles Gerena: My name is Charles Gerena, online editor for the Research Department at the Federal Reserve Bank of Richmond.

Today, I am speaking with part of the team that produces the quarterly CFO Survey. Sonya Waddell is a vice president and economist at the Richmond Fed. She manages the Regional and Community Analysis team within the Research Department. Brent Meyer is a policy adviser and economist at the Federal Reserve Bank of Atlanta. In addition to providing monetary policy support, he heads up the Atlanta Fed's Economic Survey Research Center. John Graham is a finance professor at Duke University and a research associate at the National Bureau of Economic Research. He has served as director of the CFO Survey for the last 24 years.

Thanks for being here everyone.

All: [overlapping thank-yous]

Gerena: Let's dive right into the data. Sonya, what is the headline finding from your latest survey of chief financial officers?

Sonya Waddell: Firms are more optimistic about the economy and their own firm prospects. When we asked them to rank on a scale of zero to 100 their optimism about the economy, the average ranking jumped from 61.6 in the fourth quarter of 2020, which was already pretty high, to 67.7 this quarter. Their optimism about their own firms' prospects also rose notably from 71 to 73.2. And expectations for GDP growth shifted up.

A lot of indicators shifted up with this release, but I'll give you two examples. First, we asked firms for their growth expectations across a number of dimensions. Two of them are employment and revenues. Not only is the average growth expectation for both of these indicators very positive for 2021, but it shifted up from expectations they expressed last quarter. In other words, growth expectations for 2021 were always positive, but the optimism around where firms will find themselves at the end of the year has only improved in the last quarter.

Second, we asked firms about their key concerns, and the share of respondents who reported demand, sales or revenue as a key concern in the first quarter moved down, while the share who were concerned about labor availability moved up. That's also a sign of improving prospects for the firms in our sample.

So I think that the overall finding of this first quarter is that things are looking up. I don't want to speak for Brent or John, but I sure feel better now looking at these results than I did at this time last year.

Gerena: Well, it sounds like the economic outlook of financial leaders has significantly improved. Why is that, Brent?

Brent Meyer: Yeah, so I agree with Sonya. I feel a lot better now than I did at this time last year.

For financial leaders and their economic outlook, GDP is growing again. A lot of things are coming back online from the drop that we saw at this time last year. Employment is coming back, although not universally. Some sectors are still being pretty hard hit. Folks call that the "K-shaped recovery." My boss at the Atlanta Fed, Raphael Bostic, refers to this as the "less-than recovery."

A natural question is sort of "Why?" and some of this comes to people getting vaccinated. There are more and more people getting vaccinated. We've seen COVID cases decline quite a bit and level out in recent weeks. People are maybe ready to go back to restaurants, gather with friends or even get on a plane. And firms are seeing this pickup in demand and they're ready to meet it when it comes.

In the backdrop, the American Rescue Plan has also had an effect. What's interesting in our latest findings is the majority of our respondents did not expect the fiscal relief for many households to filter through to their firms' employment or revenue growth. So that's something we're digging into.

Gerena: Okay. On the flip side, what's still keeping people awake at night right now? Is it just the pandemic or are there other risk factors? John, what's your take?

John Graham: Well, the top concern is, of course, the pandemic and its effects on the economy. All of us, including CFOs, are concerned about whether the rate of vaccination will stay ahead of the recent increase in [novel coronavirus] cases, as well as whether current vaccines will keep mutations of the virus in check. If either of these turned against us, this would have negative effects on the economic outlook, and this is what CFOs worry about.

Having said that, while this is the top concern, to put a positive spin on it as Sonya and Brent just alluded to, this overall concern about the economy has fallen from last quarter. So it's still a big concern, but less so that it was a quarter ago.

The number two concern, for the second quarter in a row, is whether companies can hire and retain top-quality employees. Even though [the] overall unemployment rate is high, in some sectors there's a shortage of employees who possess the desired skills and traits. And from a company's perspective, this is a big deal right now. It's really a chronic and ongoing issue. I don't think it'll affect the recovery as much as how high normal growth will be once the economy gets back to what we would think of as normal, perhaps later this year.

Another major concern is tax policy, with all the current talk of raising corporate income tax rates. Prior to 2018, the US corporate income tax rate was 35 percent, which was the highest in the developed world. The tax rate was reduced in 2018 down to 21 percent, which is about the average tax rate for competing companies located in foreign countries. The current proposal is to raise the tax rate on US profits back up to 28 percent and also to raise the minimum tax rate on foreign profits.

Now this would have an advantage in collecting more tax revenues for the government. But from the business perspective, the key issues are whether higher corporate income tax rates would allow US companies to remain competitive in the world marketplace, and also whether the US will be an attractive place for foreign companies to invest. CFOs are worried about these taxes, and this is an increasing worry.

Gerena: Definitely. When we surveyed folks at the end of 2020, CFOs and other financial decision-makers were looking beyond the pandemic with some degree of optimism about their businesses and the economy. How do they feel now? Sonya, why don't you take that?

Waddell: As all three of us have said, the responses to the survey were very optimistic. One qualification we can make is around investment.

Twice a year, we ask participants questions about their plans to invest in structures and equipment. Investment intentions did not change much in the third quarter of 2020 to this past survey, and only about a third of firms intended to invest in structures or land in the next six months. Although about two thirds of firms anticipated investing in equipment, when asked why they were intending to invest, the most popular response was to repair or replace existing equipment.

So it's true that compared to the third quarter of 2020, there were many fewer respondents citing, say uncertainty or the need to preserve cash as the reasons not to invest, and that's a good thing. But the lack of investment today has implications for growth in labor productivity tomorrow.

As we all know, to grow, the economy either needs more people or higher productivity. Even with a concerted effort to get people back into the labor force, the slow population growth makes most people skeptical that we can grow just by expanding the number of people working. So we need more productivity.

More investment in capital like structures and equipment today can lead to increased labor productivity in the future. So the fact that financial decision-makers in our survey are not anticipating a pickup an investment is important. Although, of course, the reduced uncertainty and increased optimism is very welcome.

Gerena: Thank you for sharing your insights from the first CFO Survey of 2021. We'll hear more about the origins of the survey after a quick break.

Right now, let's hear more about the Richmond Fed's latest effort to share its insights on another topic — educational disparities.

Laura Ullrich: I'm Laura Ullrich, regional economist at the Richmond Fed. I'm also, like many of you are, a parent, and I've been home with my children for almost a year now trying to navigate the challenges of virtual schooling. We're lucky — I'm able to work from home for now, we have reliable high speed internet, and our school district has the resources to make virtual schooling work. But not all families and students are so lucky. Unfortunately, many of these same students were already at risk of falling behind.

At the Richmond Fed, we're worried about the long-term effects of these educational disruptions of students and also on the economy as a whole. So, we are bringing together economists, educators and policymakers to have a series of dialogues about how we can help students stay engaged and reach their economic potential.

Jessie Romero: Thanks for that description, Laura. I'm Jessie Romero, director of research publications at the Richmond Fed. And I just wanted to add that during the finale of the Richmond Fed's District Dialogues series on May 5, we'll talk about how we can help all students successfully transition to education and career opportunities after high school.

To learn more and to register, visit the Events section of our website, You can also visit our YouTube channel to watch the first four sessions, in which we talk with educators throughout the region about how they and their students have met the challenges of the past year. Go to and enter "Richmond Fed" in the search bar. We hope you'll join the conversation.

Gerena: Welcome back to Speaking of the Economy. I'm Charles Gerena and we're talking about the CFO Survey.

Let's take a few minutes to step behind the scenes. John, why did the Fuqua School of Business at Duke University decide to launch the survey 25 years ago? What makes it unique?

Graham: Fuqua launched the survey to bridge the gap between the academic ivory tower and the real-world practice of finance. By better understanding how practitioners implement finance in the real world on their job, as well as understanding the pressing issues that practitioners face, this should help professors in the business school in both their teaching and their research. And we hope this research that's tailored more to real-world problems will then filter back and benefit the business community as well. So kind of a two way bridge between the theory and practice of finance, you might say.

Now, by adding and joining together with the Richmond Fed and the Atlanta Fed, we're hoping that this bridging of the gap, if you will, between the academic world and the practice of finance will now include policymakers. And we're hoping basically to have a three-way bridge that helps all three parties in a mutually beneficial way.

Meyer: And Charles, if I can jump in here real quick.

I agree with John. This three-way bridge is really important in helping us understand what's happening in the minds of CFOs and then relate it not only to academia and practitioners but also help monetary policymakers figure out the facts on the ground.

One particular area — and Sonya mentioned this earlier — we're able to dig in and give more insight than we typically would get is with some of our semi-annual questions, questions we ask twice a year. They allow us to dig deeply into areas such as capital expenditures and credit conditions, and really give us more insight into what's happening with firms than monetary policymakers would get from the data alone.

So what makes us unique? Again, I think we fill a very important niche in the universe of business surveys. Our focus is on reaching senior financial professionals like CFOs. And I think this is crucial — these individuals tend to be well informed about all aspects of firms' activity and planning. So it's really important when we're asking questions like we do that elicit expectations, not only for own-firm planning and activity but also for the overall economy, to get at the right level. I think we're doing that here in the survey.

The other aspect of the CFO Survey that's unique is its breadth. We focus again on the relationship between own-firm optimism and expectations, optimism and expectations for the global economy. We dig into quantitative expectations for GDP growth and for equity markets. And this makes us quite different than a lot of other surveys that are more narrowly focused, even ones that we work on at the Atlanta Fed like the Business Inflation Expectations survey. Or, you could think about some other surveys that are in the field that either focus on a particular sector, like manufacturing or services, or focus on a particular question. We really span the scope of what we think is important to understand about what's happening in the economy.

Gerena: Sounds like we're definitely helping to fill an important gap.

This last question is for all three of you. What do you see for the future of business outlook surveys like the CFO Survey? What will be their place as all of these high-frequency datasets become available to chart the economy in real time? We'll start with Sonya.

Waddell: Charles, I think to answer that I would echo something that I heard Brent say about the questions that we can ask and the answers that we can elicit.

The questions that we can ask firms through business outlook surveys provides not just information on what's happening in the economy, but also context for that information, mostly because we can ask why they're making certain decisions. We can move beyond knowing that firms are not investing in structures at the same pace to understanding why they're making those decisions.

Meyer: Yeah, so this understanding about how firms react to the economy in which they're operating, that's important. We get to dig in and try to understand how firms plan through uncertainty, how they respond to certain shocks, how successful they are, what determines success. These are questions that hopefully we can answer with the CFO Survey.

Graham: Just to add on to that, our survey is one of the few based on a consistent panel of CFOs that we draw from every quarter. If we observe a change from one quarter to the next, we know it's the same firms operating differently instead of many other surveys [that] have different companies responding in different quarters; it's harder to know where the change is coming from.

On top of that, of course, we have this long history to provide context. We can compare the current recession that we've had over the last year with the recession of 2008-2009 and also to the dot-com bubble-bursting recession that happened in the early 2000s. We have a very long history to provide context to analyze and understand these real-time decisions that companies are making today.

Gerena: Thanks for that useful background for the survey, and I also appreciate you taking the time, all of you, for looking back at the current survey and giving us a little bit more detail behind that.

The current CFO Survey is on the Richmond Fed's website, They are every quarter, and we have a variety of other indicators that are both on the national and regional level and so we encourage you to check it out.

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