Most CFOs Support Privatization of Social Security
FLORHAM PARK, N.J., and NEW YORK, Dec. 14 /PRNewswire/ -- CFOs expect
accelerated growth in capital and technology spending at their companies
during the next 12 months, despite acknowledging the impact of higher producer
prices.
According to the December "CFO Outlook Survey," conducted by Financial
Executives International and Baruch College's Zicklin School of Business,
participating CFOs expect capital spending at their company to increase by 14%
in the next 12 months, compared to the 8% increase predicted last quarter.
They also forecast a 12% rise in technology spending versus 7% projected last
quarter.
These spending projections were made despite more than half (56%) saying
their companies have felt the impact of rising producer prices last quarter.
However, more than three-quarters (77%) of that group plan to pass along at
least half or all of the increased costs to consumers.
CFOs remain quite optimistic about the economy. While the "CFO Outlook
Survey" optimism index took a slight dip for the second consecutive quarter,
at 70.78 (out of 100) it's close to its record high of 73.55 recorded in June
of this year.
"Higher forecasts for capital and technology spending is a good sign for
the economy," said Burton Rothberg, Assistant Professor of Accounting at
Baruch College. "Even though CFOs are beginning to feel the pinch of higher
producer prices, they seem confident that economic growth will prevail."
Regarding interest rates, futures markets have been assuming the Libor
rate will rise to 3.36% in the next 12 months. About one in three CFOs said
the futures markets are underestimating the rise. Just over half of the
respondents think this rise is "just about right." This is the first time
since the interest rate question was first asked two quarters ago that such a
significant number of CFOs are expecting a greater increase than the markets
are.
"CFOs in our survey have shown a high collective wisdom about interest
rates," said Mr. Rothberg. "In the last two quarters, they have correctly
predicted that futures markets were overestimating future increases in
interest rates. It will be interesting to see if they again accurately
forecast the eventual change in rates."
View on Administration's Priorities
This quarter's survey took the CFOs' pulse on two of President Bush's
stated priorities for the next term: the privatization of Social Security and
tort reform. The majority of respondents (60%) support privatization of a
portion of Social Security, with 80% of this group saying they believe
privatization gives employees more control over their financial future.
Slightly more than half believe that the Social Security Trust will not have
adequate funds to provide for future generations.
Among those who do not support privatization, the most common reason was
that the government would ultimately have to compensate for poor investment
choices. Ranking second was the opinion that the average employee is not
qualified to make successful long-term investment decisions. (Respondents
were able to indicate more than one reason for agreeing or disagreeing.)
"CFOs see the clock ticking on Social Security," said Colleen Cunningham,
President and CEO of FEI, "and their views reflect both the complexity of the
issue and the diverse views held by Americans. Their informed perspective
will be constructive as the national debate on this issue continues."
CFOs were about equally divided as to whether moving class action suits to
federal from state courts would be beneficial to their companies. More than
one out of five companies said they been the target of a class action suit,
and nearly three-quarters of these suits were filed in state courts.
Interestingly, more than two-thirds of these suits were settled out of court,
and 22% of them were dismissed.
Repatriated Earnings
The American Jobs Creation Act allows companies to repatriate earnings
from overseas subsidiaries at a reduced tax rate through the end of 2005.
About one out of five companies in the survey were taking advantage of this
provision or studying the matter.
Health Care Costs Projected to Rise
CFOs' 12-month outlook for health care costs jumped to a 10% increase, up
from 9% in last quarter's survey. To help employees and employers cope, 29%
of companies are offering Health Savings Accounts which allow workers to
contribute tax-deferred money to a medical-cost-only savings account, and
another 39% of the responding companies are considering it. "These vehicles
provide a valuable benefit at a low cost to employers," Ms. Cunningham said.
"If health care costs continue to rise as predicted, more companies are likely
to take advantage of these programs."
Changes Afoot From Sarbanes-Oxley Section 404
When asked about permanent changes results from Sarbanes-Oxley Section 404
relating to the testing and reporting of internal audit controls, CFOs noted
several positives. Thirty percent cited better control over documentation of
systems changes, while 21% said they had invested in a technology solution to
monitor compliance and maintain and store internal control documentation.
(Respondents could choose more than one response.) However, more than half
(57%) said they had made "no substantive changes."
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 185
corporate CFOs electronically in December. 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 capital and technology
spending. Employee-weighted averages are used for 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.fei.org
http://www.cfosurveys.com
Company News On-Call:
http://www.prnewswire.com/comp/310650.html
CONTACT:
Andrew Healy of TowersGroup, +1-212-354-5020,
andrewhealy@towerspr.com; or Chris Allen of FEI, +1-973-765-1058,
callen@fei.org; or Burton Rothberg of Baruch College, Zicklin
School of Business, +1-646-312-3204, burt@rothberg.net
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