The feeling is about as negative as during the first quarter of 2020 (Covid-19 crisis), the fourth quarter of 2012 and the third of 2010 (both quarters marked by fears about a double-dip recession) but remains well above the lows reached during the global financial crisis. The gloom is striking considering the strength of the labour market and the difficulties of filling vacancies.
Interestingly, the assessment about the own-company prospects has declined far less, leading to a record high gap with the outlook for the economy as a whole. Admittedly, CFOs are systematically more positive for their companies than for the US economy. This is unsurprising. After all, they have better information about their own companies than about the economy in general. Moreover, they can directly influence the destiny of their companies, which is clearly not the case for the broader economy.
However, in the latest survey, the difference is exceptionally large. This is a source of concern. How long can own-company confidence remain high when faced with a deterioration of the overall environment? Interest rate developments will play a key role in this respect. 60% of respondents think they have enough cash to finance operations in the next 12 months.
However, of those companies that plan to borrow, half would reduce their capital spending plans if the borrowing costs were to increase by 2 percent. In case of an increase of 3 percent, two-third of firms indicate they would reduce their investments. It is a sobering message considering the expected tightening of monetary policy and its likely impact on corporate borrowing rates.[2]
