Optimism In 2018 Leads The Way For CFOs!

While CFOs’ moods are buoyant, they know full well that a growing economy boosted by high employment has a distinct downside – difficulty finding the workforce and talent to execute on their plans and investments. In the fourth quarter, the proportion of firms that indicated they were having difficulty hiring and retaining qualified employees was at two-decade high for the survey – 43% of CFOs called the issue a top concern.

U.S. firms said they plan to increase employment by a median of 2% in 2018. But they also expected to pay higher wages to achieve that increase. They forecast median wage growth of about 3% over the next 12 months. Wage growth should be strongest in the tech, energy, and retail/ wholesale industries, according to the survey results.

After the labor market, the next biggest concern among U.S. CFOs was also human-capital related: the cost of employee benefits. Health-care costs are expected to rise by more than 8% in 2018. Nearly half of U.S. CFOs indicated that the cost of employee health benefits crowded out their ability to spend on long-term corporate investment. Health-benefits costs ranked even higher than government regulation and (prior to the U.S. tax cut) corporate taxes in that respect.

On the list of CFOs’ top concerns, data security issues rose to third place, its highest ranking ever, followed by government policies, regulatory requirements, and employee productivity.

While it’s tempting to attribute the forecast of higher tech spending and employment at many U.S. firms solely to CFOs’ sunny disposition over a tax cut, the truth is that the organizations are also being pushed by competitive forces, namely, the overall rapid pace of innovation.

In the fourth-quarter survey, 62% of CFOs indicated the pace of innovation at their firms and within their industry had picked up in the past three years. Among those companies, 63% indicated the rapid pace of change had caused their firms to focus more on the near-term, and 40% said they now choose projects with shorter lives.

CFOs at those firms also indicated that they have had to invest more to keep up. As a result of more rapid innovation, 76% of respondents indicated they boosted capital spending and 46% said they increased research and development outlays. Nearly one-third (31%) said innovation has spurred them to tackle ambitious, “moonshot” projects.

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