CFOs Report Diminished Optimism Amid Trade Policy Uncertainty and Inflation

New data reveals a decline in optimism among chief financial officers (CFOs) at the beginning of the year, suggesting growing concerns surrounding tariff risks and economic uncertainty. This sentiment shift comes following a period of heightened optimism post-President Donald Trump’s election, according to a survey conducted by Duke University in collaboration with two Federal Reserve banks. Key Findings from the CFO Survey The optimism index, reflecting the outlook of approximately 400 CFOs—crucial figures in decisions concerning corporate investments and expenditures—dropped from an impressive 66 at the end of last year to 62.1 in the first quarter of this year. This index, which measures corporate sentiment on a scale from 0 to 100, had experienced a significant downturn during the pandemic, hitting a low of 50.5, but saw a brief rise following the 2016 election. Industry-specific insights show that only the construction sector reported increased optimism, climbing from 66.6 to 68. Conversely, the manufacturing sector—often highlighted by Trump for its potential benefits from tax on imports—saw optimism decline from 66.6 to 61.6. Uncertain Trade Policies Impact Sentiment CFOs’ diminished optimism appears closely linked to their worries about the unpredictable consequences of tariffs and altering global trade dynamics. Many CFOs are now predicting slower economic growth and higher prices in comparison to their projections at the end of the last year. Sonya Ravindranath Waddell, a vice president and economist at the Federal Reserve Bank of Richmond, noted, “Uncertainty and trade policy were clearly on the minds of CFOs.” The survey indicates that nearly one-third of CFOs expressed concern about tariffs. Those with such reservations reported significantly diminished optimism, alongside reduced expectations for GDP growth, revenue generation, and employment opportunities, while anticipating increased price growth moving into 2025. Consumer Sentiment Mirrors CFO Concerns This decline in corporate optimism aligns with recent findings from the Conference Board, which noted a sharp drop in consumer sentiment, reaching a four-year low in March. Surveyed households exhibited fears of both economic recession and rising inflation.