Tariffs Hit Hard: CFOs Adjust Hiring and Spending Strategies

Economic optimism among chief financial officers (CFOs) has taken a hit in the first quarter of 2025, with significant concerns surrounding tariffs and broader economic uncertainty. According to a recent CFO Survey conducted by Duke University's Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta, about a quarter of firms are revising their hiring and capital spending plans due to changes in trade policy. This shift highlights the ongoing impact of tariffs on business strategies and overall economic sentiment.

Economic Optimism Slides

The economic optimism index fell from 66.0 in the fourth quarter of 2024 to 62.1 in the first quarter of 2025. While optimism about their own firm's financial prospects also dipped, it did so less dramatically, from 71.3 to 68.4[1][3]. The survey, which polled between 345 to 390 U.S. firms between February 18 and March 7, 2025, indicates that CFOs are cautious about making significant adjustments in response to tariffs.

Key Concerns:

• Trade Policy and Tariffs: Almost a third of the respondents expressed concerns about trade policy or tariffs, a sharp increase from the previous quarter[3][4].
• Economic Uncertainty: Uncertainty was among the top concerns, reflecting the challenges CFOs face in making long-term business decisions amidst unpredictable global trade dynamics[3].

Impact on Hiring and Capital Spending

The survey reveals that about a quarter of firms are decreasing their hiring and cutting back on capital spending in response to changes in trade policy[1][3]. This trend suggests that while many CFOs are concerned about tariffs, the immediate impact on business operations is becoming more pronounced.

Actions in Response to Tariffs:

• Supply Chain Diversification: Almost 30% of firms plan to diversify their supply chains to mitigate potential risks associated with tariffs[1][3].
• Purchasing Adjustments: 20% of firms are adjusting their purchasing schedules to better manage the timing of imports and minimize tariff impacts[2].
• Finding New Suppliers: Efforts to identify new domestic or foreign suppliers are underway, reflecting a broader strategy to reduce reliance on imports subject to tariffs[3].

Regulatory Policy and Other Influences

Changes in regulatory policy also appear to affect hiring and capital spending plans significantly, both positively and negatively. However, immigration and corporate tax policies have had a minimal impact on these decisions[1][3].

Market Reaction and Economic Trends

In terms of revenue and sales, most companies remain responsive to market trends but have been hesitant to make drastic changes due to uncertain tariff impacts[2]. The decline in overall economic optimism has led to a slight decrease in expectations for real GDP growth among CFOs, with some forecasting negative growth for the coming year[2].

Expectations for Growth:

• Revenue Growth: CFOs expect a year-over-year revenue growth of about 6.8% in 2025[1].
• Employment Growth: Expectations for full-time employment growth are modest at 2.5%, reflecting a decline from previous quarters[1].
• Price Growth: Expected price growth is around 3.5%, steady from the previous quarter but influenced by rising unit costs and tariffs[1].

Conclusion: Tariffs and Economic Uncertainty

The ongoing concerns about tariffs and economic uncertainty have created a challenging environment for businesses. As CFOs navigate these complexities, strategic adjustments in hiring and capital spending are becoming more common. While most firms are not drastically overhauling their strategies, the need for flexibility and adaptability in the face of changing trade policies is evident.

Future Outlook

Given the current trends, it's crucial for CFOs and policymakers to closely monitor developments in trade policy and their effects on the business landscape. The ability to adapt quickly and make informed decisions will be key to navigating the challenges presented by tariffs and other economic uncertainties.