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Grant Thornton Survey: CFOs ‘Doggedly’ Investing More in Growth

Aug. 16, 2023
Executives plan to more highly prioritize sales and marketing spending as well as workforce and training projects.

A new survey from accounting and advisory firm Grant Thornton shows finance leaders are becoming more confident about investing in growth initiatives after several years of needing to address emergencies or being almost exclusively focused on cost containment.

“We’re past the breakers now,” said Sean Denham, managing partner for Grant Thornton’s Atlantic region. “We’re in calmer waters.”

In their latest quarterly report, Denham and other senior leaders at Grant Thornton write that CFOs are “doggedly pursuing growth,” focusing foremost on technology and workforce initiatives. When surveyed in late May—a window worth noting since much of the economic data released since, including inflation and consumer spending, has been in a positive trend—CFOs’ overall optimism was in line with that of early this year, while 68% of them said they expect revenue growth at their organizations in the coming 12 months.

That’s why, Denham said, CFOs are more confident now about investing in growth than in the spring, even though cost containment remains a high priority. Asked in late spring about the areas where they expect to steer more spending in the next 12 months, the CFOs put sales and marketing behind only cybersecurity and IT/digital transformation—areas Denham categorizes as non-negotiable needs for firms these days.

Adding to the overall tone of growth-oriented investments: Right behind putting more money into sales and marketing on the CFOs’ lists were investing in their companies’ workforce and, relatedly, their training and development programs. That reflects both an acknowledgement that labor remains scarce and hiring tough as well as executive teams’ reluctance to cut costs by trimming their workforces: Only 27% of the CFOs in Grant Thornton’s Q2 survey are eyeing layoffs in the coming year, down from 40% early this year.

The growing optimism reflected in Grant Thornton’s survey has been justified by the continued (or rebounding) strength of many indicators this summer, as well as commentary from various corners of the economy and markets. Yes, there are some warning signs—perhaps most notable for manufacturing, the Institute for Supply Management’s purchasing managers’ index has since October implied that the factory sector is contracting–but they are being overshadowed by headlines such as the Federal Reserve Bank of Atlanta GDPNow tool’s most recent update, which is projecting the economy will grow more than 5.0% in the third quarter.

To some extent, Eric Winograd of research firm AllianceBernstein wrote recently, today’s U.S. economy is “a tale of two outlooks.” Consumers, whose spending account for about 70% of GDP, remain in fine fettle thanks both to stimulus payments from 2020 and 2021 as well as wage gains that have turned from nominal to real as inflation has receded. That ebullience, Winograd wrote, is likely to fade in coming months—just not that much—and meet with growing corporate confidence of the kind Grant Thornton’s survey points to.

“The best way to view the path forward is to split the difference,” Winograd wrote. “When it comes to our forecast, this all adds up to GDP growth that will be positive, but below trend, for the next 18 months.”

This week’s latest Empire State Manufacturing Survey from the Federal Reserve Bank of New York speaks to this consumers-corporations dichotomy and to the chances that the sentiment gap closes. Though new orders and shipments fell, “capital spending plans firmed somewhat [and] firms grew more optimistic about the six-month outlook.”

It’s worth noting that many of the largest manufacturing companies have the cash to turn growing optimism into action. Helped by price hikes and broadly lower input and freight costs, their margins have held up well in the past year. A number of companies—most commonly in the oil and gas sector—have committed to returning more capital directly to shareholders, but others are hearing calls from shareholders to put that money to work.

“Investors are not impressed with cost-cutting anymore,” Josh Brown of Ritholtz Wealth Management said on the firm’s “The Compound and Friends” podcast Aug. 8. “That was last quarter’s story. Now they want sales growth.”

And as public companies respond, their spending will signal to smaller and private firms that they, too, can more confidently move forward with investments. Put it all together, Grant Thornton’s Denham said, and CFOs are showing they’re ready to capitalize on the faster growth we’re seeing after having done the hard work of riding out the pandemic and managing its corollary disruptions of strained supply chains, high inflation and a dire workforce shortage.

“CFOs are usually ahead of the economy. They had a feeling this was coming,” Denham said of the strengthening economy. “They’ve made the adjustments they needed to make. They are going to be more strategic now that things have leveled out a bit.”

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