Key Takeaways

Forty-six percent of surveyed CFOs expect the North American economy to be in a recession by the new year, while 39% expect the North American economy to be in a period of stagflation.
CFOs' concerns over persistent inflation outweighed angst over the possibility of a recession nearly 3 to 1.
Just 33% of CFOs rate the current North American economy as good or very good, a marked decline from 52% in the second quarter of 2022.
The nearly one-quarter (24%) of CFOs considering U.S. equities as undervalued is the highest this figure has reached since the 1Q16 CFO Signals survey.
Domestic hiring growth expectations fell to 2.6% from 5.3% in the second quarter of 2022.
Why it matters to CFOs?
Each quarter, CFO Signals™ tracks the thinking and actions of leading CFOs representing North America's largest and most influential companies. Since 2010, the survey has provided key insights into the business environment, company priorities and expectations, finance priorities, and CFOs' personal priorities. Participating CFOs represent diversified, large companies, with 84% of respondents reporting revenue in excess of $1 billion. More than one-quarter are from companies with greater than $10 billion in annual revenue.

Economic outlook
CFOs' sentiment toward current conditions in all five economic regions covered in the CFO Signals survey fell this quarter. For North America, 33% of CFOs rated the current economy as good or very good, a noticeable decline from 52% in 2Q22. However, 29% of CFOs indicated conditions in North America will improve in a year, up from 18% in the prior quarter. Sentiment was similarly gloomy for the current economies of Europe, China and South America, with just 7% of CFOs viewing conditions as good or very good in each region — all representing a decline from 2Q22. The economy of Asia, excluding China, fared slightly better, with 17% of CFOs considering it as good or very good.

Own company optimism and risk
The percentage of CFOs expressing more optimism for their companies' financial prospects declined to 19% from 27% in the prior quarter. This figure is the lowest it has been since the 2Q20 survey. That said, there was a slight uptick in the percentage of CFOs saying now is a good time to be taking greater risks, at 38%, compared to 35% in 2Q22. Inflation and geopolitics stood out most prominently among CFOs' long list of external risks. Internally, talent, especially retention issues, continued to dominate CFOs' list of internal worries.

Key operating metrics
For the second consecutive quarter, CFOs lowered their year-over-year growth expectations for revenue, earnings and capital spending. Revenue growth decreased to 6.2% from 7.8%, earnings growth declined to 6.4% from 8.4%, and capital spending growth expectations fell to 4.3% from 11.2%. CFOs also reduced their growth expectations for both domestic wages/salaries and domestic hiring — the first significant decrease since the 2Q20 CFO Signals survey. Domestic wages/salaries growth expectations decreased to 4.8% from 5.3%, and domestic hiring growth fell to 2.6% from 5.3%. Dividend growth remained flat on a quarter-to-quarter basis, at 4%.

Recession and inflation expectations and planning
Forty-six percent of surveyed CFOs expect the North American economy to be in a recession by the new year. CFOs are taking actions to prepare, including the most-often cited step: reducing or closely managing operating expenses. CFOs are also controlling headcount, limiting hiring, and increasing productivity. Furthermore, several CFOs are evaluating their customers, services and/or products to identify opportunities to help recession-proof their organizations.

Slightly more than one-third of CFOs (39%) noted they expect the North American economy to be in a period of stagflation by 2023. Another 15% expressed a more optimistic outlook, indicating they expect the region's economy to be growing with low-to-moderate inflation by 2023. Of note, CFOs' concerns over persistent inflation outweighed angst over the possibility of a recession nearly 3 to 1.

Assessment of capital markets
The proportion of CFOs regarding U.S. equities overvalued in this quarter's survey fell to 30% from 43% in the prior quarter. Forty-six percent of CFOs indicated U.S. equities were neither overvalued nor undervalued, while 24% viewed them as being undervalued — the lowest percentage since 1Q16. Fewer CFOs this quarter found debt financing as attractive than in 2Q22: Just 16% indicated that debt financing is attractive, a sizable decline from 32% in the prior quarter. Record levels of inflation and fears of a potential recession may have fueled the drop. Meanwhile, the attractiveness of equity financing among CFOs rose slightly, to 26% from 22% in the prior quarter.

Key quotes
"Deloitte's Q3 CFO Signals survey reveals that CFOs are grappling with the effects of inflation and the prospects of a potential recession. Some organizations are already taking measures to cope with slowing growth, including cuts to hiring, wage growth and capital spending. Nevertheless, sustained inflation remains a more worrying prospect for CFOs than a recession."