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A measure of CFO optimism plummeted to Great Recession-era lows last quarter as the coronavirus pandemic froze the economy

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A measure of CFO optimism plummeted to Great Recession-era lows last quarter as the coronavirus pandemic froze the economy

The CFO Optimism Index fell to 42 in the second half of March from 58, according to the quarterly study from Duke University and CFO magazine released Wednesday.The swift slump matches sentiment lows seen during the 2008 financial crisis, according to the report. The index signals that the economy will perform as poorly in 2020 as…

A measure of CFO optimism plummeted to Great Recession-era lows last quarter as the coronavirus pandemic froze the economy
  • The CFO Optimism Index fell to 42 in the second half of March from 58, according to the quarterly study from Duke University and CFO magazine released Wednesday.
  • The swift slump matches sentiment lows seen during the 2008 financial crisis, according to the report. 
  • The index signals that the economy will perform as poorly in 2020 as it did during the Great Recession, according to John Graham, a finance professor at Duke University’s Fuqua School of Business and director of the survey. 
  • Visit Business Insider’s homepage for more stories.

The coronavirus pandemic has sent sentiment among chief financial officers plummeting to lows not seen since the Great Recession in a matter of days, according to a key study. 

The CFO Optimism Index fell to 42 in the second half of March from 58, according to the Duke University/CFO Global Business Outlook results released Wednesday. This matches sentiment lows seen during the 2008 financial crisis, the report showed. 

The quarterly survey, conducted between February 25 and April 3, demonstrated just how quickly CFO optimism reversed amid the coronavirus pandemic. Before March 15, the index read of 58 was only slightly below the long-run average, indicating some pessimism but not signaling worry. But after March 15, the index plunged to meet its all-time low in the US and tested lows in other regions around the world as well. 

“I’ve never seen a drop like that,” John Graham, a finance professor at Duke University’s Fuqua School of Business and director of the survey, told Business Insider in an interview. “It was almost overnight.” 

The change in optimism was much faster than during 2008, Graham said. Then, the decline in the optimism index was much more gradual, occurring over the course of many quarters, before hitting the bottom. The index, which has been a good predictor of future GDP and unemployment, signals that the economy will perform as poorly in 2020 as it did during the Great Recession, according to Graham. 

Before March 15, US companies planned to bump up payrolls by 4% and spending by nearly 5% over the next year, the survey showed. After March 15, companies indicated that they planned to reduce both spending and employment by 1.4% and 1.2%, respectively. 

Read more: ‘Not a panacea’: UBS explains why half of the companies the Fed is targeting with its $2 trillion loan stimulus may still go bust

It’s possible that the situation will deteriorate further as the coronavirus crisis continues, according to Graham. 

“Even with the pessimism expressed during the second half of March, only about one-third of U.S. firms believed that they face large financial risk due to COVID-19, while about half said they faced medium risk,” said Graham. “Should more companies realize that they in fact face large financial risk due to the virus, hiring and spending numbers will get even worse.” 

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Still, Graham said that if the US is through the worst of the health crisis, sentiment could shift more positively in the next quarter. On Monday, President Donald Trump said that growth in new cases of COVID-19 appeared to stabilize, especially in hot spots such as New York state.  

But the economic backdrop has already shown considerable damage, and a recovery may take some time. In three weeks, nearly 17 million Americans have filed for unemployment insurance as coronavirus layoffs persist. A majority of economists expect the US is either in a recession or will fall into one, and on Tuesday the International Monetary Fund said that the “Great Lockdown” will be the worst downturn since the Great Depression.

But there’s still much uncertainty about the future and how it might impact company performance. Companies surveyed said that in a worst-case scenario, they saw sales revenue slumping 13.3% in the next year. The best-case scenario was that sales revenue would grow 4% in the next year, according to the survey.

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