The finance heads of North America’s top companies have become increasingly pessimistic about the outlook for the economy and their own companies in 2017, as they eye the paralysis in Washington D.C. and worry about rising tensions with North Korea.

That’s according to Deloitte’s third-quarter CFO Signals Survey, a quarterly poll of companies in the U.S., Canada and Mexico with more than $1 billion in revenue.

The survey, which Deloitte has conducted for the past 30 quarters, found net optimism in their own companies tumbled to 29% in the third quarter from 44% in the second quarter. In the manufacturing sector, the decline was steeper, falling to 22% from 52% in the prior quarter, while the energy sector saw a decline to 19% from 48%.

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“It is difficult to say what is behind these declining expectations, but CFOs’ list of most worrisome external risks seems to indicate that U.S. political turmoil and geopolitical risks are weighing even more than they did last quarter,” said the report.

Greg Dickinson, managing director for Deloitte’s CFO program and a lead author of the report, said it was a “big, rough quarter,” with the increasing tensions with North Korea creating fear.

The failure of the administration of President Donald Trump to advance agenda items, such as tax reform, trade policy and health care reform provided another layer of uncertainty.

“The subtext for CFOs is what will happen to the global economy,” he said. “Just in reacting to what will happen, or even what might happen, they are asking will it lead to trade policy changes with China? Will there be a general slowing of emerging markets? Will it affect capital markets?“

Executives had demonstrated a burst of optimism in the survey conducted in the fourth quarter of 2016 following Trump’s election, driven by expectations his presidency would lead to changes in tax policy and deregulation, among other business- friendly initiatives.

That optimism has gradually been eroded as Trump’s policy drive has stalled and other risks have emerged.

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Dickinson said the survey allows for an initial “gut check” in questions that test perception and sentiment, asking CFOs how they view the current and future state of leading world economies. That initial response is often tempered when CFOs are asked to make financial predictions, especially for their own companies.

“The confidence in the outlook for the next year is coming down, but the year-on-year numbers are still pretty good,” he said. “What will be interesting is to see whether in the fourth quarter we have that follow-on of sentiment coming down. “

The survey found expectations for the economies of China and Europe remained strong, but the view of the North American outlook showed growing concern. Sixty-four percent of CFOs said current conditions are good, only slightly less than the 65% recorded last quarter, but only 45% expect improved conditions in a year, against 58% last quarter. The North American optimism index slid to +69 from +77.

A full 83% of CFOs polled said U.S. equity markets are overvalued, marking a survey high. That’s after the S&P 500 SPX, -1.11% and other major indexes have set repeated records this year. Eighty-three percent of those polled said debt financing remains attractive, down from 85% last quarter, while 48% of public company CFOs said equity financing is attractive, up from 42% last quarter. Private company CFOs took an opposite view, with 35% saying equity financing is attractive, down from 46% last quarter.

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Concerns about talent and finding people with the right skill sets remained a key concern, reflecting a tightening labor market and suggesting that wages will start to climb, said Dickinson.

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About 60% of CFOs said they expect revenue growth, one of the highest levels in survey history, while just 20% said they expect cost cuts, one of the lowest levels. Revenue growth expectations roe to 5.7% from 5.6%. Earnings growth expectations fell to 7.9% from last quarter’s 8.7%, but remain above the two-year average.

Capital investment growth expectations fell to 7.3% from 9.0%, placing them among five-year highs. Domestic hiring growth expectations rose to 2.6% from 2.1%.

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One issue that is stressing CFOs is digital transformation, which was identified by many as an external and internal risk. Technology change, technology disruption, IT development and effective implementation of new IT systems, were all cited in the survey across industries.

“There’s a lot of concerns about Amazon AMZN, -1.78% and about online eroding business models,” said Dickinson. “Companies don’t want to overshoot and they want to partner with the right kinds of company.”

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