One in Four Companies Will Increase Offshore Employment
Bush and Kerry Rated Even on Domestic Issues; Bush Seen as Better for Economy
DURHAM, N.C. and FLORHAM PARK, N.J., March 31 /PRNewswire/ -- Chief
financial officers of U.S. companies predict higher levels of capital spending
and employment growth than they have for more than three years, according to
the March quarterly "CFO Outlook Survey," conducted by Financial Executives
International (FEI) and Duke University's Fuqua School of Business.
An increase in capital spending is expected at 69 percent of companies
over the next 12 months, with an average increase of 11 percent, more than
double the 5 percent increase expected last quarter. This quarter's cap-ex
forecast is dramatically higher than predictions of just a year and a half ago
when companies were looking at a contraction in spending.
In another positive trend, CFOs predict strong employment growth. Nearly
three-fourths of the surveyed companies plan to increase the number of their
employees in the coming year, while only 7 percent expect to reduce
employment. Overall, the number of employees should increase by a robust
5 percent. This is a significant improvement over expectations of the past
three years when forecasts ranged from a decline to less than 2% growth.
"CFOs hold the corporate purse strings," noted Colleen Sayther, President
and CEO of FEI. "Most have been managing in an environment where spending at
a 'normal' rate was not the norm, and spending 'ambitiously' was virtually
non-existent. Their predictions this quarter about an improvement in capital
expenditures is very good news for the economy, and combined with their
predictions about employment levels, very good news for the nation's
workforce."
The Offshore Component
One-quarter of companies in the March survey say that their firms
outsource their workforce to offshore locations. Averaged across all
companies, including those that do not offshore any employment, 8 percent of
total employment is located outside the United States. Among the companies
that already offshore employment, 18 percent of their workforce is non-U.S.
Going forward, twenty-seven percent of all companies in the survey expect
to increase the amount of work sent offshore. Among companies that already
employ offshore, 61 percent expect to increase their offshore employment,
while only 4 percent expect to decrease their number of offshore employees.
The CFOs report that their companies are satisfied with the quality of work
being performed offshore. Over half (53 percent) say that the work quality is
above average or excellent, and another 40 percent say it is at least average.
Offshore employment is most notable among manufacturing firms and among
firms that have at least half of their sales in foreign markets. The primary
reason that jobs are sent overseas is to reduce wages (73 percent), followed
by reduced health care costs (31 percent), support of overseas operations (27
percent), and expansion of hours of service (17 percent).
The jobs being sent overseas are generally low- to moderate-skill. The
tasks sent overseas vary and include manufacturing jobs, tech support,
programming, engineering, back-office administration, and call and data center
functions.
"The trend of increased offshore employment is worrisome from a long-run
domestic employment perspective," noted John Graham, professor of finance at
Duke University and the director of the survey. "However, so many other
forces can come into play, like robust U.S. economic growth and even
legislative change, that there's no clear view on the long-term future of
offshore employment."
Bush vs. Kerry
The Republican party appears to generate more confidence from corporate
executives, at least in the CFO suite, than the Democratic party. More than
half think President George Bush would do a better job as President than
Senator John Kerry in the areas of GDP growth and the stock market. Bush
scored dramatically better than Kerry in the area of homeland security. They
were virtually even regarding how CFOs think they can handle domestic issues
(Kerry edging ahead by .4 percentage point).
Other Survey Highlights
Following are CFO predictions:
* Earnings growth: expected to average a robust 30.6 percent during the
next 12 months (median growth of 15 percent). Earnings increases are
expected to average more than 30 percent for smaller firms (sales of
less than $1 billion), and about 20 percent for larger firms (sales of
at least $1 billion).
* Sales revenue: expected to increase by 10 percent in the next year,
with large firms expecting an increase in revenues of about 7 percent,
and smaller firms expecting an increase of about 15 percent.
* Tech spending: three-fourths of firms expect to increase tech-spending,
with an average expected increase of 4 percent.
* Health care costs: expected to increase 10.2 percent.
* Price inflation: prices of products are expected to rise 2.8 percent,
the highest level of "pricing power" expressed in at least two years.
* Wages: expected to increase by an average of 3.5 percent.
* Mergers and acquisitions: 16 percent increase in activity expected.
* Economic optimism: continues at near-record levels with a mean score of
67.5 (on a scale of 0 to 100). This compares to 55.4 reported one year
ago but down slightly from the score of 71 reported during the fourth
quarter of 2003.
* Company optimism: on the rise, with a mean score of 73.6, an all time
high. This compares to the company optimism score of 62.7 reported one
year ago and of 71.5 reported last quarter.
* GDP prediction: 3.2 percent growth, down slightly from last quarter's
3.6 percent.
* U.S. Dollar: to appreciate relative to the euro. By the end of the
year the dollar is expected to appreciate seven percent and reach an
exchange rate of 0.86 dollars to 1.0 euros.
"All indicators point towards a return to a stable, long-run growth
trajectory for the U.S. economy and corporate America," said Dr. Graham.
About the Survey
The CFO Outlook Survey, conducted by Financial Executives International
and Duke University's Fuqua School of Business, interviewed 216 CFOs of U.S.
companies electronically the third week of March. CFOs from both public and
private companies and from a broad range of industries, geographic areas and
revenues are represented. Among the industries represented are
retail/wholesale, mining/construction, manufacturing, transportation/energy,
communications/media, technology, and banking/finance/insurance. Revenue-
weighted mean growth rates are provided for earnings, revenues, capital
spending, technology spending, inventory, merger and acquisition activity, and
prices of products. Employee-weighted mean growth rates are used for health
care costs, productivity, number of employees and outsourced employment.
FEI and Fuqua have conducted surveys gauging the country's economic
outlook from the perspective of corporate CFOs for the past seven years.
Detailed results of this survey as well as other "CFO Outlook" surveys are
available at http://www.cfosurvey.org
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.
The Fuqua School of Business at Duke University was founded in 1970.
Fuqua's mission is to educate thoughtful business leaders worldwide and to
promote the advancement of business management through research. For more
information, visit http://www.fuqua.duke.edu.
Contact:
Margaret Towers Chris Allen Jim Gray
TowersGroup FEI Duke-Fuqua
212.354.5020 973.765.1058 919.660.2935
margarettowers@towerspr.com callen@fei.org jigray@duke.edu
SOURCE Financial Executives International
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Related links:
http://www.fei.org
http://www.cfosurvey.org http://www.fuqua.duke.edu
Company News On-Call:
http://www.prnewswire.com/comp/310650.html
CONTACT:
Margaret Towers, TowersGroup,
+1-212-354-5020, margarettowers@towerspr.com, for FEI; Chris
Allen, FEI, +1-973-765-1058, callen@fei.org; Jim Gray,
Duke-Fuqua, +1-919-660-2935, jigray@duke.edu
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