Optimistic about Economy and Corporate Prospects
Higher Long-Term Interest Rates Forecast but Not Feared
FLORHAM PARK, N.J. and NEW YORK, March 10 /PRNewswire/ -- Optimistic about
the economy and their companies, CFOs are forecasting a 13% increase in
capital spending over the next 12 months. Even though they expect long-term
interest rates to rise, they are not worried about the effect on their
business.
According to the first quarter "CFO Outlook Survey," conducted by
Financial Executives International and Baruch College's Zicklin School of
Business, CFOs rate their optimism on the economy at 71 out of a possible 100
and their optimism about the financial prospects for their company at 75.
Both numbers have been within a two-point range of these rates for the past
four quarters.
Survey results seem to confirm broader senior management optimism: earlier
in the quarter the Business Roundtable's CEO survey reported a high level of
confidence. The CFOs' forecasts also substantiate recent theories that
businesses, not consumers, will be leading this economic expansion.
This quarter's 13% forecast for a capital spending increase over the next
year closely tracks their forecast from last quarter and remains significantly
higher than the 8% increase forecast six months ago.
CFOs Prepared for Rates to Rise
More than 90% of respondents expect long-term interest rates to rise over
the next 12 months. Sixty-six percent expect 10-year rates to land between
4.29% (their yield on February 28) and 4.75%, and 25% predict they will go
above 4.75%. Nevertheless, rising interest rates ranked sixth in a list of
their companies' biggest worries, far behind the traditional business
pressures of competition and U.S. economic growth but slightly ahead of the
price of oil and cost of compliance.
"In the past several surveys, CFOs have forecast short-term interest rates
more accurately than the markets," said Burton Rothberg, Assistant Professor
of Accounting at Baruch College. "Interesting, in contrast to prior quarters
when CFOs felt that futures market were overestimating interest rate
increases, a quarter of our respondents are now expecting a significant rise.
Their attitude about long-term rates suggests that CFOs won't be taken by
surprise by higher rates and are prepared for them. This bodes well for the
economy as a whole."
Health Care Squeeze
CFOs expect health care costs to rise 9% in the next 12 months. The
impact is affecting employee coverage. Forty-two percent of private
companies, which are typically smaller than the public companies in the
survey, say that high costs have caused them to trim benefits. Of those
cutting back, 71% have reduced the number of plan benefits and features, while
79% now require higher employee contributions. Of the 10% of respondents who
said they enhanced their health care coverage despite rising costs, 78% said
they improved the quality of the benefits.
Change in 401(k) plans
Of the companies in the survey offering 401(k) plans, more than half (56%)
changed the mutual fund choices in their plan last year. Although most said
the reason was a desire for better performance (35%) or broader
diversification (27%), a smaller percentage (14%) said they wanted funds
untouched by irregular trading.
"Even if the mutual fund scandals were not the main reason to change
providers, their high public profile compelled many companies to take a closer
look at their defined contribution plans," said Colleen Cunningham, President
and CEO of FEI. "In the end, this is likely to be a plus for plan
participants."
Favored Options Model
Regarding the FASB's recently issued final statement requiring the
expensing of share-based payments, significantly one-third of the surveyed
companies have not yet chosen a valuation model. Of those that have made a
choice, 62% indicated that they will be using the Black Scholes model for
valuing options, while 36% plan to use the binomial lattice model.
About the Survey
For full survey results, visit http://www.cfosurveys.com or contact
andrewhealy@towerspr.com.
This quarter, the CFO Outlook Survey, conducted by Financial Executives
International and Baruch College's Zicklin School of Business, interviewed 235
corporate CFOs electronically in March. CFOs from both public and private
companies and from a broad range of industries, revenues and geographic areas,
including some off-shore companies, are represented. Survey respondents are
members of Financial Executives International.
Revenue-weighted averages are provided for projected changes in capital
and technology spending. Employee-weighted averages are used for projected
changes in health care costs.
FEI has been conducting surveys gauging the country's economic outlook
from the perspective of corporate CFOs for the past eight years.
Financial Executives International (FEI) is the leading advocate for the
views of corporate financial management. Its 15,000 members hold policy-
making positions as chief financial officers, treasurers, and controllers.
FEI enhances member professional development through peer networking, career
planning services, conferences, publications, and special reports and
research. Members participate in the activities of 86 chapters, 75 of which
are in the United States and 11 in Canada. For more information about FEI,
visit http://www.fei.org.
Baruch College, founded in 1847, is a senior college of the City
University of New York. The Zicklin School of Business at Baruch College is
the largest collegiate school of business in the nation, producing graduates
who assume leadership positions in all areas of American business as well as
conduct important academic research. Baruch has one of the largest accounting
programs in the country whose graduates become practicing CPAs.
SOURCE Financial Executives International
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Related links:
http://www.fei.org
http://www.cfosurveys.com
Company News On-Call:
http://www.prnewswire.com/comp/310650.html
CONTACT:
Andrew Healy, TowersGroup, +1-212-354-5020,
andrewhealy@towerspr.com, for Financial Executives International,
or Chris Allen, FEI, +1-973-765-1058, callen@fei.org, or Burton
Rothberg, Baruch College, Zicklin School of Business,
+1-646-251-4211, burt@rothberg.net
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