Report: 40% of CFOs Cut Spending Due to Rate Hikes

A new survey finds a growing number of CFOs trimming spending due to higher interest rates.

The survey, issued earlier this week by Duke University’s Fuqua School of Business and the Federal Reserve Banks of Atlanta and Richmond, found that around 40% of chief financial officers (CFOs) were reducing capital and non-capital spending in the face of the Federal Reserve’s ongoing rate hikes.

That’s up from 32% in the fourth quarter of 2022, the last time the survey was conducted.

“Monetary policy appears to be further dampening business spending and hiring plans,” John Graham, finance professor at the Fuqua School of Business and the director of the survey, said in a news release.

“Overall, the weak (but still positive) growth in 2023, followed by improved prospects in 2024, suggests that policymakers may yet pull off a soft landing for the U.S. economy,” Graham said.

But even with a soft landing, Graham believes some businesses could have a harder time ahead of them than others, according to remarks he made in an interview Thursday (Sept. 28) with The Wall Street Journal (WSJ).

And even if companies are borrowing, “sometimes on a monthly basis, they might have to borrow more now because their cash buffer is shrinking,” Graham said.

The WSJ asked if he was referring to larger companies. Yes, said Graham, though he added that even mid-sized companies plan to use a mix of retained earnings and new borrowings.

“Smaller companies on the other hand that haven’t had a chance to accumulate much profit, they’re going to feel the bite of monetary policy sooner,” he said.

The report also found some reasons to expect a brighter outlook for 2024, with respondents projecting employment growth to increase and revenues to rebound, as well as less likelihood of negative GDP growth.

As for companies spending their money, Visa’s 2023-2024 Growth Corporates Working Capital Index, which uses research from PYMNTS Intelligence, found that more middle market companies use working capital solutions to fund strategic growth initiatives and expected gaps rather than covering unanticipated cash flow shortfalls.

Middle market companies are firms with annual revenues of $50 million up to $1 billion.

“Overall, 70% of all users saw improved business metrics as measured by lower days payable outstanding (DPO), lower cash conversion cycles and higher working capital ratio,” PYMNTS wrote recently. “These metrics can be used as measures of a firm’s liquidity and operational efficiency, and they reflect its capacity to meet payment obligations.”