CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.

CFO Brew

Cost Management

Alex Zank

cfobrew.com

US manufacturing activity shrank for an eighth straight month in October, due to slumps in both production and inventories, according to the latest sector index from the Institute for Supply Management (ISM).

ISM’s purchasing managers index (PMI) came in at 48.7% last month, slightly lower than September’s reading of 49.1%. An index reading below 50% indicates a contraction in the manufacturing sector. Economists that Reuters 

 had predicted a slight improvement in the PMI, to 49.5%, but the government shutdown “has caused a government economic data blackout,” Reuters reported.

It was “contractions in production and inventories” that were responsible for “the 0.4-percentage point decrease of the manufacturing PMI” over the previous month, Susan Spence, chair of the ISM’s Manufacturing Business Survey Committee, said in a news release. ISM’s production index decreased 2.8 percentage points from September, to 48.2%. Its inventories index of 45.8% was down 1.9 percentage points.

All four of ISM’s demand indicators—new orders, exports, order backlogs, and customer inventories—improved, but were “still in contraction territory” last month, according to Spence.

 ISM’s prices index reading of 58% showed that manufacturers generally paid more for materials last month, albeit at a slower rate than the 61.9% reading in September. Sectors that reported paying higher raw-materials prices included apparel, appliances, computer and electronics products, furniture, and food and beverage products, among others.

Thomas Ryan, North American economist at Capital Economics, wrote in a note that the prices index decrease was “the most encouraging aspect of the report,” Bloomberg 

. Ryan added that the reading hit “its lowest level since tariffs were imposed,” and it “indicates the worst of the tariff-driven pressure on manufacturers’ input costs is likely behind us.”

US manufacturing contracted for an eighth straight month in October

ISM’s latest manufacturing index showed that production and inventories weighed the sector down, though a lower pricing index offered some optimism.

Interest rates can complicate capital strategy, so it’s no surprise that it’s a top of mind issue for finance leaders. A recent Deloitte 

 found that interest rates were a top external risk among CFOs. And while interest rates are finally 

, it’s been an otherwise tough environment.

It’s one thing being a finance executive of nearly any organization during periods of high interest rates. Leading the finance function of an online mortgage lender, where interest rates are a key driver of consumer demand, is like playing CFO on hardcore difficulty.

That’s the challenge facing Kevin Ryan, CFO of Better Home & Finance. The company, which operates the website Better.com, is playing in what Ryan described as a “challenging market environment” but also has its sights set on reaching EBITDA breakeven by Q3 of next year.

Ryan’s focus during this period has been to get Better leaner and meaner so it can work toward its goal even amid a drastically shrinking market.

The mortgage market ain’t what it used to be.

 According to Ryan, back in 2021, Better had $58 billion in mortgage volume and raked in $1 billion of revenue. Better recently reported approximately $44 million in Q2 revenue, much smaller than in its heyday, but a $12 million YoY improvement. But the mortgage market was much bigger four years ago, Ryan said.

Residential mortgage origination volume totaled roughly $4.1 trillion in 2021, according to Federal Housing Finance Agency data. Origination volume fell precipitously to $1.3 trillion in 2023. Origination volume during the first three quarters of last year, which was the latest data FHFA had available, totaled nearly $1.1 trillion.

“The industry in 2025 is half the size of what it was in 2021, and we, and all our competitors…are dealing with that,” Ryan said.

In order to grow its business, Better has had to carve off a larger piece of a smaller pie. In Q2, the company reported a 25% YoY increase in funded loan volume to $1.2 billion, and a $5 million YoY improvement in net losses. Its EBITDA loss grew by $4 million YoY in Q2, but improved by $13 million from Q1.

Ryan noted that other factors, such as housing availability and the number of people moving, also shape the mortgage market.

But he said, “probably the largest driver of mortgage demand is how much [it costs] to get a mortgage.” Ryan said that the market should grow again once rates come down. (Our interview took place before the Fed announced plans to cut rates.)

Cost discipline is the name of the game when on a shrinking playing field.

 Better has tackled the marketwide problem by cutting costs and investing in technology to improve its processes, Ryan said. It’s a strategy—controlling costs while prioritizing tech investments–that many other finance leaders are employing, per a June RGP 

Better’s technology investments have a few benefits, he said. They create a better user experience, put Better in a stronger position to take advantage of a market rebound, and reduce the cost to write a mortgage—so Better has more cash to use elsewhere.

“For each loan we make, it costs us less per loan as a result of the AI and tech investments we’ve made,” Ryan said. “That allows us to spend a little more money on marketing [and] pass a little bit better rate through to the customer, so that it makes the mortgage on the margin a little more attractive for the consumer.”

Ryan said that, at a basic level, creating a mortgage is not much different than making a can of soda. Being able to offer that can for $1.50 instead of $2 means the customers who would have bought one for $2 are happy, but those who would have otherwise passed on it may now get out their wallets.

“But that presupposes you can make money at [a] lower cost to the consumer,” Ryan said. “That requires us to really manage our expenses, invest in technology, automate more so that we can manufacture at a lower cost.”

As CFO, Ryan said he regularly looks at the cost of writing a loan, identifies where the inputs are most expensive, and figures out how to make those parts of the business more efficient. This may be through cutting down on vendor costs or identifying new near-term growth opportunities.

 question,” he said. “I have a fixed amount of capital, and how do I want to allocate it? Trying to develop a real capital allocation policy is important.”

What to do when trying to grow amid a shrinking market? 

Turn to the CFO. 

Jesse Klein

Corporate all-hands meetings will probably have a slide about employer health insurance this year, because health insurance costs are going to be a hot topic. Get ready, because employers—and employees—will have to figure out how to cover a cost spike.

Employer coverage is expected to increase an average of 9.2% to 9.5% in 2026, the biggest increase in 15 years, according to the 

 on employers. The rising costs are attributable to lingering inflation, as hospitals ask for higher prices; the 

; and the need for more healthcare services, as rates of cancer, cardiovascular problems, and musculo-skeletal issues climb among working age people, according to the Journal.

Aging workers are also staying in jobs longer and accessing more telemedicine, which is all adding to ballooning medical care costs, the 

. And of course we can’t forget tariffs, which are affecting prices of medical devices, supplies, and drugs.

“This is the worst I’ve seen,” Pam Kehaly, CEO of Blue Cross Blue Shield of Arizona, told The Wall Street Journal about the rising healthcare costs.

Employers are looking at alternatives to cut costs and avoid pushing rate hikes onto employees. A WTW survey provided to the Wall Street Journal found that 60% of large employers were considering switching health insurers, and a third were thinking of finagling new plans with limited access to providers to cut down costs.

But some will still choose to push the costs onto employees “through larger payroll deductions for premiums or higher out-of-pocket charges such as deductibles,” per the WSJ. 

Those all-hands are going to be a lot of fun, for sure.

Health insurance costs face largest rate hike in 15 years

After three years of health insurance costs increasing, this year…they will also increase.

It’s a good time to be cutting-edge technology. A human worker? Not so much.

 of more than 200 finance leaders, nearly six in 10 organizations are investing in data, modern infrastructure, and artificial intelligence. The same percentage also said they’re spending money on “operational efficiency initiatives to streamline processes and protect margins in an uncertain economic climate.”

But it’s not like companies are throwing money at AI hand over fist, at least not yet. Just 42% of the respondents said they were spending 10% or more of their capital budgets on AI, despite the fact that 84% said they’re optimistic about AI’s potential.

And it’s not all spend, spend, spend at these organizations, either.

“Cost reduction remains top of mind” among finance leaders, according to the survey. Respondents said they anticipate laying off employees, cutting capital expenses, and shedding third-party services.

“The era of blanket cost-cutting is over,” the report states. “CFOs are pursuing intelligent reallocation of capital, prioritizing transformation over trimming.” The result, according to RGP, is cuts to “legacy areas” and more money for “innovation enablers.”

 Those who’ve been in the CFO seat for a while know that role has changed significantly over the years into a strategic partner of the chief executive. But it’s not just the CEO they’re rubbing elbows with these days.

According to RGP, the finance chief “is evolving into a broader enterprise leadership position, requiring deep collaboration with CIOs and CHROs.” The consulting firm added that CFOs now share decision-making with their counterparts in HR and IT “around workforce strategy, digital investment, and enterprise transformation.”

“Whether it’s funding AI pilots, restructuring operating models, or navigating workforce redeployment, the CFO’s perspective is essential.”

CFOs say they’re prioritizing tech investments, and cutting costs elsewhere

It’s a tale of two budgets.

The “One Big Beautiful Bill” (OBBB) will have lasting impacts on electricity investment and prices for the next decade, according to a 

 from nonpartisan think tank Energy Innovation. And, surprise, surprise, it’ll make your utility bills go up.

The legislation passed by the Senate will likely boost oil and gas production by expanding drilling on public land and slashing costs by reducing the federal government’s share of revenue from fossil fuels extracted on public land. But even more and cheaper production won’t be enough to keep energy bills from going up, especially because renewable energy is 

“There’s less incentive for developers to invest in these [renewable energy] projects,” Daniel O’Brien, senior analyst at Energy Innovation, told CFO Brew. “With less new low-cost production capacity coming onto the grid, power prices become more expensive for consumers…for industries and businesses alike.”

 According to Energy Innovation’s findings, repealing Biden-era energy tax credits, along with delaying funding for agriculture and forestry projects, will increase household energy costs by $170 a year on average over the next decade.

Wholesale electricity prices will increase by 25% in the next five years and 74% in the next decade, according to Energy Innovation’s research. And in terms of higher energy costs and job cuts, the top five biggest losers of the bill are all Trump voting states: South Carolina, Florida, Texas, Kentucky, and North Carolina.

According to O’Brien, the Energy Innovation model uses government data, and sometimes academic or NGO sources, to predict “what the energy system would look like with current policies in place” analyzing power capacity needs through different economic conditions. What they found is that “the cheapest and fastest way to meet electricity needs is through wind and solar.” However, the new bill provides fewer resources and investments for those types of renewable energy sources.

For example, during the Biden years, Oklahoma 

 from an investment in windmills on its plains that provided residents with cheap, green electricity. Without the tax break, continued investment is likely to stall and prices will likely increase, according to CNBC. And O’Brien predicted that less efficient gas plants, known as peaker plants that are only meant to run at peak hours, will increase operations, pushing up costs and pollution.

 in the OBBB that forbid clean energy credits from going to projects that source materials from China will also “significantly hamper the development of domestic electricity generation capacity,” according to the report. Most 

The cuts to electricity supply come right as the US is in need of it most—for the AI boom. Data center energy needs are likely to more than double by 2035, according to 

. Restricting supply and making energy more expensive during this key moment will “damag[ing] US industrial competitiveness,” the report says.

But it’s not just electricity prices. Energy Innovation’s analysis shows that both GDP and job growth will also be collateral damage.

“Manufacturing is one of the biggest losers around the country,” O’Brien said. Without the tax credits, businesses lose the incentives for creating facilities to produce energy products like batteries and cells that go in wind turbines. And as demand for solar and wind drops, so does demand for the basic components and materials behind them, like steel and glass, causing a secondary economic downturn, he said.

The US could lose out on $980 billion in GDP as private investment stalls out, and 760,000 jobs will be lost by 2030 as factories shutter, according to Energy Innovations.

So next time your heating bill cracks triple digits, start calling your senators instead of your utility supplier.

Electricity prices will soar due to Trump’s ‘One Big Beautiful Bill,’ according to report

Just as US demand for energy skyrockets, the bill will cut off cheap, clean energy supplies

CFOs looking for quick, cheap energy could be in for a long, and expensive, wait. A 

 from the journal Energy Research & Social Science and the Boston University Institute for Global Sustainability, as well as universities in Denmark and the UK, looked at 83 countries and found that historically, more than 60% of energy projects ran over budget between 1936 and 2024. The average energy project blew past its expected costs by 40% and was delayed by nearly two years. The study found that this trend is global, including for newer tech like hydrogen, carbon capture, and nuclear.

The study examined 662 energy infrastructure projects, from coal plants and geothermal power to bioenergy and hydroelectric dams. The budget for all the projects was $812 billion, but the actual costs skyrocketed to $1.358 trillion. Nuclear power plants were the largest contributor to that increase: The average project costs $1.6 billion more than expected, or 102.5% over budget.

On the other hand, solar energy is the overachiever of the clean energy group project—usually finishing construction early or under budget, according to the report.

Most surprisingly, as projects got bigger than 1,561 megawatts in capacity, instead of benefiting from economies of scale, they were more likely to run over cost. (The study didn’t specify how much more over). These diseconomies of scale suggest that smaller, modular renewable energy projects can be deployed more easily and carry less financial risk.

Energy infrastructure is taking too long and is too expensive

Energy projects on average run 40% over budget and take two years longer than expected.

How’s this for an Onion-style headline: Tariff experts were 

 of 500 manufacturing, construction, transportation, warehouse and other industrial professionals, less than 10% of US companies have brought any manufacturing or other production back to US soil because of the tariffs.

The survey was conducted by PlantTours, a communication headset company used for tours by Disney, Johnson & Johnson, Unilever, Amazon, P&G, and many others.

On top of the lack of reshoring, 64% of the professionals surveyed said their companies made no significant supply chain changes, and only 21% said they moved to domestic suppliers.

Instead, the tariffs have caused them to increase prices, cut profit margins, and reduce their workforces.

About 75% of respondents said that the increased costs from the tariffs were showing up as increased prices for consumers. Even the 41% who initially tried to absorb the costs had to ultimately pass them along to customers. The increase in prices led to a loss of customers for at least 14% of businesses.

More than half of the respondents (55%) said that tariffs reduced their profits by 10% to 15%, and one construction company exec told PlantTours they had to revise the terms of some contracts when the cost of materials started to balloon.

Another unintended consequence of the tariffs? A push toward automation and reduction in workforce. Nearly half (45%) said they had laid people off as a result of the tariffs. Around 40% said their companies had pivoted toward innovation and automation to cut costs.

But even with the chaos, the professionals interviewed didn’t cite the tariffs as their top challenge. Inflation was still sitting pretty at the top, at 38%, and tariffs came in a lowly second at 19%. While almost 60% of respondents did say the “tariffs brought no notable upsides,” around 30% said they came with silver linings, such as forcing them to make their supply chains more resilient.

Construction site with signs blocking materials reading tariffs.