CFOs are growing more concerned about the increasing costs of borrowing, with more companies cutting capital and non-capital spending now than in Q4 of 2022 because of high interest rates, according to the latest quarterly CFO Survey released this week.
The data, published by Duke University’s Fuqua School of Business and the Federal Reserve Banks of Atlanta and Richmond, found that 40.7% of CFOs said current rates have forced them to cut capital spending in Q3 of 2023, while 41.7% said they have cut costs in other non-capital areas such as travel. This marked an increase from Q4 of 2022, when 31.5% said they had reduced capital spending and 28.6% reported they had reduced non-capital spending.
For the first time in over a decade, respondents to the CFO survey cited monetary policy as their most pressing concern, slightly ahead of labor availability, inflation, and demand for their products/services.
The Federal Reserve, as part of its goal of reducing inflation to 2%, has embarked on a series of interest rate increases to slow the economy. Although the Fed left rates unchanged at its meeting last week, it raised the benchmark federal funds rate in July to a range of 5.25% and 5.5%, which is a 22-year high. The Fed began rapidly lifting interest rates 18 months ago, when rates were at near zero, and has signaled at least one more increase could come before 2024.
Aside from interest rates, other factors have led companies to pull back on spending. Over half of all firms (52.2%) noted economic uncertainty, 41.4% reported weaker customer demand, and 33% reported difficulty hiring employees as reasons they are reducing spending.
Despite the pullback in spending, CFOs remained optimistic, suggesting the current situation is more of a temporary slowdown instead of a significant retrenchment. The index measuring optimism about the U.S. economy increased slightly in Q3 compared to Q2, and the mean expected growth in real GDP over the next four quarters increased from 1.0% to 1.3%.
CFOs said they anticipate conditions will broadly improve in 2024, with growth in prices, unit costs, and wages expected to decelerate, while employment and revenue growth are expected to accelerate relative to 2023.
The survey, released on Sept. 27, was conducted between Aug. 21 and Sept. 8 and included 320 CFOs.