CFO optimism wanes amid continued inflation, supply chain, and labor issues

Chief financial officers saw their optimism about the US economy drop as a majority cited concerns about cash flow, inflation, talent shortages, and supply chain disruptions, according to Grant Thornton’s 2021 Q4 CFO Survey.

Just 57% of CFOs told Grant Thornton in December that they have a positive outlook on the US economy for the next six months – down from 69% in the third quarter of 2021. Net pessimism on US economic outlook nearly doubled from 11% in Q3 to 21% in Q4.

Over half of CFOs (52%) cited an increased focus on cash flow and liquidity in response to disruptions, up from 35% in Q3.

“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. “At the same time, CFOs are uniquely positioned to map a successful future for their organizations. It’s important for them to realize that many of these challenges are interconnected — then act accordingly.”

CFOs no longer see inflation as a short-term reaction to the pandemic, with 53% expecting inflation to impact their businesses for at least 6 months and 33% expecting it to persist for more than 12 months.

“Most CFOs have gone their entire careers without having to model the effect of inflation on pricing and profits,” Santilli said. “Finance leaders will have to help manage cost structures while addressing and communicating potential margin erosion as material and workforce costs skyrocket.”

Workforce shortages are another top challenge, with the Great Resignation showing no signs of slowing down after a record number of employee departures in November 2021. Sixty-eight percent of CFOs told Grant Thornton that their organization is likely to see a shortage of talent in 2022, with over half (53%) expecting the talent crunch to have a negative impact on their business.

In response, just over half (52%) of CFOs are increasing investment in benefits and compensation, likely in a bid to head off resignations and attract talent.

Supply chain disruption was the top concern of surveyed CFOs, with 40% including supply chain in their list of the three biggest challenges facing their business – a 14% increase from Q3. Fifty-three percent said they believe supply chain disruption will negatively impact their business.

In response, large companies such as Walmart and Costco have been chartering their own container ships to transport goods from Asia to North America. “A few companies are taking exceptional measures to address supply chain issues, such as buying their own container ships and starting to manufacture their own containers,” said Ben YoKell, Grant Thornton’s national sourcing and supply chain transformation practice leader. “But the vast majority of businesses are settling into a new reality that requires some very hard choices.”

The accounting and consulting firm notes that optimizing benefits and focusing on retaining drivers and warehouse staff would help mitigate parts of the supply chain disruption. “Talent shortages contribute to disruptions in supply chains, which, in turn, lead to low supply, high demand and inflation,” Santilli added. “CFOs need to collaborate with HR leaders and other key executives across their organizations to ensure their businesses weather the storm appropriately. Now is not the time to panic; it’s the time to get creative.”