Drop in Tech, Capital Spending Forecasts
CFOs Worried About PBGC Solvency
FLORHAM PARK, N.J. and NEW YORK, June 9 /PRNewswire/ -- CFO optimism about
the U.S. economy and their own companies' financial prospects is the lowest it
has been during the past 12 months.
According to the second quarter "CFO Outlook Survey," conducted by
Financial Executives International and Baruch College's Zicklin School of
Business, the CFO Optimism Index of the U.S. economy is now 68.66, down 7%
from 73.55 a year ago. The Optimism Index of CFOs' own companies' prospects
registers 74.09, a smaller drop of 3% from 76.40 a year ago. CFOs from 186
companies participated in this quarter's survey.
CFOs are predicting only a 5% increase in capital spending over the next
12 months, less than half their prediction of 13% three months ago.
Technology spending is expected to increase 4%, the lowest forecast since June
2003.
Burton Rothberg, Assistant Professor of Accounting at Baruch College
noted, "The CFO community paints a mixed, but still generally positive picture
of the US economy. The level of optimism of the US economy is down, as would
probably be expected as the recovery matures. Recent rises in short term
interest rates, oil prices and the US dollar have likely taken some of the
shine off the outlook. Nonetheless, the CFOs continue to rate the prospects
for their own companies at high levels. This is an important point since it's
information from their own order books."
PBGC A Concern for Most CFOs
Reacting to the Pension Benefit Guaranty Corporation's assumption of large
portions of United Airlines' $9.8 billion in pension obligations, about two-
thirds (65%) of the CFOs are quite or very concerned about the PBGC's future
solvency. The PBGC is not funded by general tax revenues and most CFOs think
it should stay that way, despite their concerns. One CFO notes that most
taxpayers would be outraged if their tax dollars were being used to fund
someone else's pension benefit.
Seventeen percent of CFOs, however, would approve of using taxpayer
dollars to support the financial well-being of the PBGC. "Realistically,
general tax funding is inevitable," forecasts one survey respondent.
If PBGC premiums rose high enough, about a third of the CFOs whose
companies offer defined benefit plans would consider a reduction in benefits
or would consider no longer offering such a plan.
Rating Agencies Earn a Solid "C"
CFOs whose companies are rated by credit rating agencies were asked about
their satisfaction with the accuracy, timeliness and transparency of their
ratings. Their satisfaction level was average at best in all categories.
Forty percent of the surveyed CFOs would like to see more entrants in the
credit rating business, compared to a third who would not, and 44% believe
that oversight of the rating agencies is inadequate, compared to 32% who are
satisfied with the oversight.
"Many of our members are expressing frustration regarding the credit
rating industry," said Colleen Cunningham, President and CEO of FEI. "They
are not sure of the factors used to make the credit determination. Some see
upgrades as slow to happen despite significant positive change at their
company. Others are frustrated by the agencies' lack of accountability for
their ratings. I think all would agree, however, that more disclosure,
standardized reporting and consistency would create fairer and more accurate
credit ratings."
Health Care Discomfort
CFOs expect health care costs to rise about 8% over the next 12 months, a
lower expectation when compared to prior quarters. Since larger companies
offer insurers a larger pool over which to spread risk, and usually have more
leverage with insurers, they generally report smaller increases in health
care.
Revaluation of the Yuan
When asked how a revaluation of the Yuan would affect their company, 39.1%
said that it would have no impact at all. Interestingly though, the same
amount of companies who say a revaluation would have a small to moderate
negative impact (25.1%), equals the number of companies who say that this
would have a small to moderate positive impact.
About the Survey
Full survey results will be available June 13 at
http://www.cfosurveys.com . For information prior to that, please contact
andrewhealy@towerspr.com.
This quarter, the CFO Outlook Survey, conducted by Financial Executives
International and Baruch College's Zicklin School of Business, interviewed 186
corporate CFOs electronically in June. 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; Baruch College
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Related links:
http://www.cfosurveys.com
http://www.fei.org
Company News On-Call:
http://www.prnewswire.com/comp/310650.html
CONTACT:
Andrew Healy of TowersGroup, +1-212-354-5020,
andrewhealy@towerspr.com, for Financial Executives International
and Baruch College; Chris Allen of FEI, +1-973-765-1058,
callen@fei.org; Burton Rothberg of Baruch College, Zicklin School
of Business, +1-646-251-4211, burt@rothberg.net
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