CFOs Optimistic but Uncertain About the Pace of Recovery

CFO Optimism

When survey participants were asked between November 30 and December 11 to rate the financial prospects of their firms on a scale from 0 to 100, the average optimism level was 71.0. When asked to rate their optimism about the overall U.S. economy, the average index was 61.6. Both indexes were slightly above third quarter levels and well above readings from the first quarter.

Note: The dashed vertical line denotes a moderate change in the question wording and presentation. Please see The CFO Survey Methodology for further information.
CFOs' Most Pressing Concerns

When firms were asked about their most pressing concerns, demand/sales/revenue remained the most common response. But the fourth quarter also saw a shift from concerns of low demand to issues such as labor quality and tax policy.

Note: Data reflect results from the Q4 2020 survey (November 30 to December 11, 2020). Percentages do not sum to 100 because only the top ten topics (and ties) are shown. Results from the Q3 2020 survey (September 14–25, 2020) are shown for comparison, but some categories from the original reporting may no longer rank in the top ten. Please refer to The CFO Survey Methodology for more information.

CFOs’ Expectations for Their Firms’ Performance

Financial leaders responding to the fourth quarter survey broadly expected revenue and employment growth to pick up in 2021. Wages and non-wage compensation were also expected to grow faster in 2021.

CFOs’ Growth Expectations for Their Own Firms	Q4 2020		Q3 2020
Mean Expected Year-Over-Year Percentage Change for Calendar Years	2020	2021	2020	2021
Revenue	0.3%	6.9%	-0.2%	8.7%
Prices	1.9%	4.0%	1.7%	4.3%
Employment (full-time)	0.7%	4.1%	-2.4%	2.2%
Wage Bill	1.3%	4.0%	1.9%	5.4%
Non-wage Compensation	3.2%	5.8%	3.8%	6.0%

Q4 2020 data in the chart and table reflect results for 286 to 297 U.S. firms responding to the Q4 2020 survey (November 30 to December 11, 2020). Results from the Q3 2020 survey (September 14–25, 2020) are shown for comparison. Revenue and Prices are weighted by sales revenue. Employment, Wage Bill, and Non-wage Compensation are weighted by employment. These data are also winsorized at 2.5% and 97.5% to remove the potential influence of extreme values. Please refer to The CFO Survey Methodology for more information.

CFOs indicated that firms continue to limit spending, but conditions improved since the third quarter. Although only a third of fourth quarter respondents reported increased spending over the last three months, a much smaller share decreased spending, compared to the third quarter.

Note: Q4 2020 data reflect results for 308 U.S. firms responding to the Q4 2020 survey (November 30 to December 11, 2020). Results from the Q3 2020 survey (September 14–25, 2020) are shown for comparison.

CFOs’ Expectations for the Aggregate Economy

Among survey respondents in the fourth quarter, the mean expectation for real GDP growth over the next four quarters was 2.8 percent. Respondents expected an average annual return on the S&P 500 of 4.8 percent over the next 12 months and 6.2 percent over the next 10 years.

Expectations for Real GDP Growth Over Next Four Quarters	Q4 2020	Q3 2020
Weighted Mean	2.8%	2.2%
Weighted Median	2.5%	1.5%
Probability of Negative Growth (mean share of probability on bins below zero)	15.2%	22.9%

Note: Q4 2020 data in the chart and table reflect results for 260 U.S. firms responding to the Q4 2020 survey (November 30 to December 11, 2020). Results from the Q3 2020 survey (September 14–25, 2020) are shown for comparison. Responses are weighted by sales revenue. Firms are first asked to gauge their familiarity with real Gross Domestic Product (GDP). Those who indicate they are unfamiliar with the concept are not presented with this question. Please refer to The CFO Survey Methodology for more information.

Expectations for Stock Market Performance (for Average Annual S&P 500 Returns)	Expected Return Over Next 12 Months	Expected Return Over Next 10 Years
Most Likely Case	4.8%	6.2%
Worst Case (a 1-in-10 chance the actual return will be less than):	-7.7%	0.9%
Best Case (a 1-in-10 chance the actual return will be greater than):	11.9%	10.5%

Note: Data reflect results from the Q4 2020 survey (November 30 to December 1, 2020). The table shows responses from 144 to 147 U.S. firms that indicated they closely follow the stock market. Responses are unweighted and winsorized at 2.5% and 97.5% to remove the potential influence of extreme values. Please refer to The CFO Survey Methodology for more information.

Semiannual Questions on Credit

The fourth quarter CFO Survey included a semiannual credit module to understand firms’ requests for credit, sources of credit, and perceived access to credit. Compared to the second quarter, a smaller share of fourth quarter respondents applied for credit in the previous six months.

Note: Q4 2020 data reflect results for 305 U.S. firms responding to the Q4 2020 survey (November 30 to December 11, 2020). Results from the Q2 2020 survey (June 15–26, 2020) are shown for comparison.

Note: Q4 2020 data reflect results for 77 U.S. firms that indicated they had applied for credit in the last 6 months in the Q4 2020 survey (November 30 to December 11, 2020). Results from the Q2 2020 survey (June 15–26, 2020) are shown for comparison.

Overall, do you feel obtaining credit for this business has become more difficult, less difficult, or has remained the same over the last 6 months? Percent of Firms	Q4 2020	Q2 2020
More Difficult (and reason)	35.1%	32.4%
Change in Creditworthiness of Business	7.8%	8.8%
Change in Lending Standards	20.8%	14.7%
Other	6.5%	8.8%
Same	54.5%	56.6%
Less Difficult (and reason)	10.4%	11.0%
Change in Creditworthiness of Business	5.2%	1.5%
Change in Lending Standards	1.3%	4.4%
Other	3.9%	5.1%

Special Questions on Automation and Uncertainty

Automation

While hiring is expected to rebound in 2021, more than half of large firm CFOs say their companies are implementing technology to replace labor, and for most of those firms, at least some of the automation was intended to solve labor-related challenges caused by the pandemic. Much of the increase in automation was also intended to replace low-skilled workers.

Note: Data reflect results for 55 U.S. large firms (over 500 employees) and 246 U.S. small firms responding to the Q4 2020 survey (November 30 to December 11, 2020).

Note: Data reflect results from the Q4 2020 survey (November 30 to December 11, 2020). The chart shows responses from 31 U.S. large firms (over 500 employees) and 77 U.S. small firms that indicated they had implemented or planned to implement automation to reduce their reliance on labor. Low-skill positions are defined as routine, manual tasks that do not require a college degree or specialized training. High-skill positions are defined as nonroutine, creative tasks that require specialized training or a college degree.

Uncertainty

Respondents in the fourth quarter expressed considerable uncertainty about revenue expectations. When asked for the highest and lowest possible percentage changes in revenue for 2021, the average respondent’s forecast ranged from -1.6 percent to 13.7 percent. The CFOs who are most uncertain about revenues in 2021 are also least optimistic about the economy, and, particularly, the financial prospects of their own firms.

What would be your estimate for the highest and lowest possible percentage changes in your revenue for calendar years 2021 and 2022?	2021	2022
Lowest possible percentage change	-1.6%	1.0%
Most likely percentage change	6.7%	8.1%
Highest possible percentage change	13.7%	14.2%

Note: Data reflect results from the Q4 2020 survey (November 30 to December 11, 2020). The table shows 2021 revenue growth expectations for 246 U.S. firms and 2022 revenue growth expectations for 296 U.S. firms. Responses are weighted by sales revenue. These data are also winsorized at 2.5% and 97.5% to remove the potential influence of extreme values.

Note: Data reflect results from the Q4 2020 survey (November 30 to December 11, 2020). The chart shows average optimism about own-firm financial prospects across the distribution of respondents’ revenue spread. The first quartile, for example, is the set of respondents with the lowest spread, and thus indicates the lowest level of uncertainty. These data are winsorized at the 2.5% and 97.5% to remove the potential influence of extreme values.

Note: Data reflect results from the Q4 2020 survey (November 30 to December 11, 2020). The chart shows average optimism about the economy across the distribution of respondents’ revenue spread. The first quartile, for example, is the set of respondents with the lowest spread, and thus indicates the lowest level of uncertainty. These data are winsorized at the 2.5% and 97.5% to remove the potential influence of extreme values.

Data & Results – Q4 2020

CFOs Optimistic but Uncertain About the Pace of Recovery

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