Rise in Key Corporate Indicators Predicted
Employment Still the Laggard
DURHAM, N.C. and FLORHAM PARK, N.J., Sept. 30 /PRNewswire-FirstCall/ --
Chief Financial Officers of U.S. companies are optimistic about the U.S.
economy and their own companies' prospects. They expect the U.S. recovery to
become more robust, and they predict increases in corporate revenues,
earnings, capital spending, employment and inventory. This outlook is more
upbeat than it has been for over a year.
According to the September "CFO Outlook Survey," conducted by Financial
Executives International (FEI) and Duke University's Fuqua School of Business,
three out of four CFOs (74%) are more optimistic about the economy this
quarter than they were the prior quarter and only 8% are less optimistic.
This is the highest level of optimism recorded in more than a year.
The CFO optimism about the economy is reflected in higher expectations
about Gross Domestic Product, with average expectation of 2.9% over the coming
year (median expected increase of 3%). This prediction is higher than any GDP
prediction during the past three quarters.
CFOs are also more optimistic about their own companies than they have
been since this measurement began in June 2002. Two-thirds are more
optimistic about their companies' financial prospects this quarter (see
attached chart).
Eighty-five percent of the surveyed CFOs expect corporate earnings to
increase in the coming year, with an average increase of 16.9% (median, 10%)
over the next 12 months. Revenues are expected to increase for 87% of firms,
with an average increase in revenues of 8.1% (median increase of 8%).
"CFOs are out in front of what is happening in the company and play a key
role in investment decisions -- capital spending and people," notes FEI
President and CEO Colleen Sayther. "Hopefully, this cautious optimism is a
catalyst for new investment."
Capital Spending
Capital spending, an important economic indicator, is expected to increase
by 9.0% in the coming year. This is a bigger increase than CFOs have
predicted for the past year and a dramatic increase over last quarter's
expected rise of only 1.5%.
While capital spending is still stuck in the "cautious" mode at half (51%)
of the companies, 10% of the surveyed CFOs say their companies are spending
"ambitiously." This compares favorably with just 6% and 7% spending at that
level in the last two quarters.
CFOs say technology spending will increase by 4.9% during the next twelve
months, an improvement over the 2.2% expected increase reported last quarter.
Advertising spending is expected to increase 3.2%; last quarter's prediction
was "no growth."
"Capital spending, more than any other corporate activity, will lift the
economy," said John Graham, a finance professor at Duke University and the
director of the survey. "Over the last several quarters, CFOs' optimism has
wavered as they predicted only modest gains in spending. We think this
quarter's increased optimism, in tandem with increased spending expectations,
is a strong sign for continued economic growth."
More jobs -- at some companies
Employment as an economic driver is improving, though modestly and slowly.
Across all firms, employment is expected to increase by only 1.1% during the
next 12 months, though overtime is expected to increase 1.9%. This
expectation is an improvement over last quarter when hiring plans as well as
overtime plans were flat.
Forty-two percent of CFOs say that their firms plan to increase
employment, though only 4% are hiring aggressively. One-third (32%) say that
they plan to hold the number of employees flat.
Twenty-six percent of companies still expect to lay off workers, though
that percentage is lower that it has been for the past year. Of the 26%, 5%
will plan to lay off aggressively, but 21% will only modestly decrease
headcount.
Among the companies that are hiring at a less than normal rate, their
hiring plans are roughly equally divided among three scenarios: hiring may
never return to historic levels (36%), hiring expected to return to normal in
2005 or later (31%), and hiring expected to return to normal in 2004 (33%).
The survey also queried CFOs about the impact of overseas outsourcing. In
contrast to public reports about some very large companies, shifting jobs to
foreign countries has not affected domestic employment among 75% of the
companies that are hiring at less than normal levels. However, 7% say that
foreign hiring and outsourcing has contributed in an important way to their
reduced domestic employment. The remainder (18%) call it a somewhat important
reason for lower domestic hiring levels.
"The bottom line is overall employment should pick up in the coming year,
though not as much as we might have hoped," said Dr. Graham. "For many
Americans, our recovery will continue to be jobless."
Ms. Sayther of FEI added, "We're sensing from our members that the 'new
normal' may well be economic growth with only small gains in employment. We
are in a period when risk management is in and risk taking is out, so it's not
surprising that companies are keeping a lid on their total compensation
expenses."
Inventory and Prices
Inventory expectations, like capital spending and employment, is another
good indicator of the economy's direction. CFOs this quarter say their
companies plan to increase inventory 1.0% over the next year. While this is a
modest increase, it becomes more dramatic when compared to the CFOs' responses
for the past 5 quarters, when they predicted a reduction in inventory, in some
cases over 3%.
The CFOs say that their companies expect the prices of their products to
increase by 1.7% over the next 12 months, an increase over the 0.8% price
increase expected last quarter and the small decline in prices expected six
months ago. "For now at least, deflation shouldn't be a concern," notes Dr.
Graham.
According to the CFOs, companies are facing a 10.4% rise in healthcare
costs. According to external sources, actual healthcare costs have increased
by 14% over the past 12 months.
Dividends
Dividend increases should be robust, a consequence of changes in dividend
tax rates. More than half of public firms represented in the survey expect to
increase dividends in the coming year, with the increase averaging about 10%.
About the Survey
The CFO Outlook Survey, conducted by Financial Executives International
and Duke University's Fuqua School of Business, interviewed 181 CFOs of U.S.
companies electronically the third week of September. CFOs from both public
and private companies and from a broad range of industries, geographic areas
and revenues were represented. Among the industries represented are
retail/wholesale, mining/construction, manufacturing, transportation/energy,
communications/media, technology, and banking/finance/insurance.
Revenue-weighted means were provided for earnings, capital spending,
technology spending, advertising spending, inventory and prices of products.
Employee-weighted means were used for wages, number of employees and overtime.
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:
Abby Katzen Chris Allen Dan McCleary
TowersGroup FEI Duke-Fuqua
212.354.5020 973.765.1058 919.660.2903
abbykatzen@towerspr.com callen@fei.org mccleary@duke.edu
SOURCE Financial Executives International; Duke University's
Fuqua School of
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Related links:
http://www.fei.org
http://www.fuqua.duke.edu http://www.cfosurvey.org
Photo Notes:/Company News On-Call:
http://www.prnewswire.com/comp/310650.html
CONTACT:
Abby Katzen of TowersGroup, +1-212-354-5020,
abbykatzen@towerspr.com, for FEI; Chris Allen of FEI,
+1-973-765-1058, callen@fei.org; Dan McCleary of Duke-Fuqua,
+1-919-660-2903, mccleary@duke.edu
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