Podcast
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CFO Optimism Falls as Tariff Concerns Rise
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Zach Edwards and Daniel Weitz discuss the concerns that chief financial officers across the country reported about their own companies and the national economy in the latest CFO Survey. Edwards is a research analyst on the Regional and Community Analysis team at the Federal Reserve Bank of Richmond and Weitz is survey director at the Federal Reserve Bank of Atlanta.
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Transcript
Tim Sablik: My guests today are Zach Edwards and Daniel Weitz. Zach is a research analyst at the Richmond Fed and Daniel is a survey director for the Atlanta Fed. Zach and Daniel, welcome to the show.
Zach Edwards: Good afternoon, Tim. Thanks for having us on. This is my podcast debut on Speaking of the Economy and I'm excited to be here.
Daniel Weitz: Hi, Tim. Also delighted to be here.
Sablik: We're going to be talking about the latest results from the CFO Survey, which is jointly conducted by Duke University's Fuqua School of Business and the Richmond and Atlanta Feds. The First Quarter 2025 results were released just a few weeks ago and there's a lot to unpack.
First, while we've talked about the CFO Survey on the show before, I thought you could give us a quick refresher on the details. Who is surveyed and how is the information gathered and reported?
Edwards: Once per quarter, we survey financial decisionmakers across the country to get a sense of their financial outlook for their firm, the challenges that they face, and their expectations for the overall economy. Our respondents range from small businesses to Fortune 500 companies and they span most major industries. We have a set of core survey questions we ask every quarter and then a set of special questions that change every quarter depending on what's going on in the economy. The first quarter survey was in the field from February 18 through March 7. You can find the full results and analysis on the Richmond Fed website.
Weitz: I'll just add that we typically average over 400 respondents per quarter. That's important to mention because a large and diverse sample is what allows us to conduct analysis that's statistically meaningful.
Sablik: Great point. Thank you both for the overview and refresher.
One of the headline metrics from the CFO Survey is the optimism index, which measures CFOs' optimism about the future for their own company as well as the U.S. economy overall. What happened to optimism in the first quarter?
Weitz: Well, put simply, it declined.
For a bit of context, last quarter in Q4, we saw a remarkable increase in economy-wide optimism immediately after the election. So, on a 100-point scale, economic optimism increased eight points between the third quarter survey and the post-election survey. This is triple the change we usually see between quarters. CFOs' optimism about their own company also increased, but by much less. This quarter, we saw both decline.
Optimism about the overall economy is still somewhat higher than it was in the third quarter. But CFOs are now less optimistic about their own company than they were in Q3 of last year, a remarkable turnaround from just a quarter or two earlier.
Sablik: Let's dig into that a little bit more. What are the most pressing concerns that seem to be driving this decline in optimism?
Edwards: Well, Tim, to sum it up in one word: tariffs. Every quarter, we give firms an open text box on the survey and we ask them to tell us what their most pressing concerns are. Historically, the concerns we hear about most from firms are things like inflation, monetary policy, and labor availability. But in the first quarter, nearly one third of respondents mentioned tariffs as a top concern. That's almost four times the share that mentioned them last quarter.
Plenty of firms still mention other concerns like inflation, monetary policy, and labor, but we also saw uncertainty ranked in the top five most pressing concerns. That's the highest we've seen it in some time. But, again, the top concern by far was tariffs.
Weitz: It's also interesting to note that tariffs were very little mentioned among firms in the pre-election survey last quarter. Even though it was a topic of conversation, it seemed like the concern for firms really only started crystallizing in the post-election survey. As Zach mentioned, it was by far the most cited concern in the first quarter of this year.
Sablik: Can we tell yet if the decline in sentiment has translated into CFOs changing their plans for hiring or investment?
Weitz: Yes, I think we can. Around a quarter of respondents to the most recent survey said that they had decreased their hiring plans for this year because of trade or tariff policy. The same proportion said that trade or tariffs cause them to decrease their plans for capital spending in 2025, too. This means that the policies have already caused a non-trivial proportion of firms to modify their pre-existing plans and cut back on these two areas because of recent trade developments.
Edwards: Interestingly, we also noticed that the impact of tariffs on hiring varied by industry. For example, nearly one third of manufacturing firms noted that they've changed their hiring plans for this year because of tariffs, whereas that share was only about 16 percent for business services firms. The differences, corroborated by related work a few of my colleagues and I published, suggest that the impact of tariffs varies a lot by industry and county. You can find those series of Economic Briefs on the Richmond Fed website if you're interested in learning more.
Sablik: We'll definitely include a link to those papers in the show notes.
As we've been talking trade and tariffs, were you able to break out responses based on firms' exposure to tariffs? If so, what is the message you're getting from the CFOs of companies that are most impacted by tariffs?
Edwards: Yeah, we were able to do that. Just to set the stage a little bit, the first quarter survey was fielded from February 18 through March 7. That was before the latest rounds of tariffs were announced.
At the time, Canada, Mexico, and China were the main targets of tariffs. So, we looked at our survey results by firms that import supplies from those countries versus those that don't, and we found stark differences. Businesses that rely on those countries for supplies were much less optimistic about their own company. They expected lower revenue and employment growth, and also they expected higher price and unit cost growth. Furthermore, they were less optimistic about the overall U.S. economy and expected lower GDP growth over the next year than their peers that were not directly exposed to tariffs on China, Canada, and Mexico.
The bottom line, Tim, is that firms that were directly exposed to these tariffs are generally expecting to pay more for their inputs. They're expecting to raise prices to compensate, and they're expected to hire at a slower rate than their counterparts that aren't directly affected. As one firm in the steel industry that responded to our Q1 survey put it, "The tariffs will increase costs for our company, and we expect most of these costs to be passed on. The even bigger concern for us is what the impact will be on overall demand."
Sablik: Thanks, Zach. As you mentioned, this survey closed before the announcement of the latest round of tariffs in April. Based on the responses here, do you both have an estimate of the sort of responses we might expect from CFOs in the second quarter?
Weitz: There's some reason to believe that the impact of tariffs might increase.
We know from our results that just under half of firms imported at least some of their supplies or inputs from China, Canada, or Mexico. Based on their expectations in Q1 prior to the announcement of the tariffs in April, firms importing from these countries expected lower revenue, and higher prices and unit cost growth for this year.
The tariffs that were announced in early April were viewed by many as larger than expected, while some have been postponed. Others, particularly on China, remain in effect and the prospect of the suspended tariffs being reinstated remains a real one. If that's the case, we might expect the impact on firms to increase, proportional to the size of the tariffs or the uncertainty associated with overall trade policy.
Sablik: Do you have an idea yet what sort of special questions you might be asking CFOs in the next survey?
Edwards: I don't have a definite answer for you yet, but we often like to use special questions to get a sense of how firms are being impacted and responding to events in real time. The world is as dynamic and fast paced as it's ever been. So, it's impossible to say with any certainty what the top economic issues will be about a month from now when the Q2 survey goes live. If it's anything like it is now, I guess that we'll have some follow-up questions about how firms are faring in this new trade policy environment.
Sablik: On the off chance that there are any CFOs out there listening and they want to get involved in the survey, is there a way that they can do that?
Weitz: We're always looking for new participants in our survey, financial decisionmakers of all different types of firms. If anyone's interested, they could go to the Atlanta Fed or the Richmond Fed websites and contact any of the relevant contacts on that page. They'll be sure to put you in touch with the right individuals in the survey center in Atlanta.
Edwards: It's a great way for financial decisionmakers to have their voices heard. These results go straight to the top. Monetary policymakers are seeing these results. So, if you'd like to have your voice heard and if you'd like to impact policy, then take our survey.
Sablik: Zach and Daniel, thank you for joining me today.
