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Business confidence in C-suites has taken a knock from concerns over supply chain disruptions, labour shortages and inflation.
The latest quarterly survey of chief financial officers (CFOs) conducted by consulting firm Grant Thornton found more than half the respondents expected their business to be affected by supply chain disruption and inflation.
Grant Thornton’s analysts found 53% of CFOs expected supply chain disruption to affect their business and as many as 40% included supply chain issues in the top three challenges they face, an increase of 14% on the third-quarter survey.
Overall, the analysts found the outlook for business more ominous than three months earlier, with the percentage of CFOs who expressed a positive outlook slumped from 69% in Q3 to 57% in Q4, while those with a pessimistic outlook nearly doubled, rising from 11% to 21%.
The pessimism extends to companies’ bottom-line predictions, with 27% of respondents scaling down forecasts for revenue and growth.
“CFOs continued to face unprecedented levels of disruption in the fourth quarter of 2021 and adjusted their plans accordingly,” said Enzo Santilli, national managing partner of transformation at Grant Thornton.
Its Q4 21 CFO Survey is not the only barometer indicating a darkening outlook. The Institute of Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index retreated 1.2% from December to January, to 57.6. While still in expansion territory, any reading above a value of 50 indicates growth, this was its lowest reading in 12 months.
The outlook for new orders fell 3.1%, to a reading of 57.9.
And the ISM panel also pointed to the manufacturing challenges of recent months, including supply chain issues, labour retention challenges and rising costs.
Inflation is no longer viewed as a brief interlude tied to the pandemic, but is coming to be regarded as a longer-term concern. Of the respondents in the CFO survey, 53% now expect it to impact business for at least six months, and 33% reckon it will persist for more than a year.
For many CFOs, this is practically uncharted terrain.
“We’re seeing inflation at rates we haven’t seen in 40 years,” said Mr Santilli. “Most CFOs have gone their entire career without having to model the effect of inflation on pricing and profits.”
According to the Grant Thornton survey, CFOs are shifting to a more defensive stance. More than half of the respondents reported an increased focus on cash flow, liquidity and on bolstering cash reserves. Their number climbed from 35% in the Q3 survey to 52%.
Another major focus is on employee retention. According to Grant Thornton, 53% of CFOs believe talent shortages will have a negative impact on their business and 62% think it will affect their short-term business goals. As a result, 52% are raising benefits and compensation and 44% are upping their investment in recruitment. Investment in training, learning and development is going up at the firms of 46% of the polled CFOs.
The heightened focus on cash flow and cash reserves suggests investment overall is less likely to be stepped up in the near term.
A similar picture emerges from statistics tracking orders placed with US factories for durable goods, which fell in December after three months of expansion, indicating a pause in capital investment. Some commentators are reading this as an indication that limited availability of materials and components, due to supply chain constraints and labour shortages, has tempered investment growth.
Nobody is battening down the hatches yet, however, and most economic indicators are still in growth territory, but the heady expansion of last summer has given way to a more pessimistic, and defensive, outlook.
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