Prepare the bulls: CFOs are feeling better about the outlook for the U.S. economy. While few are ready to declare the downturn over just yet, most are increasingly optimistic. In fact, finance chiefs are more hopeful about economic prospects over the next year than they have been since December 2000, when the dot-com boom was in its final throes.
According to our quarterly Global Confidence Survey of financial executives, 58 percent of U.S. respondents say they are either “confident” or “very optimistic” about the domestic economy over the next year. That’s up sharply from the 36 percent holding positive views last quarter. It’s also the first time the confidence figure has risen above 50 percent since the last quarter of 2000, when 67 percent of CFOs were upbeat about the economy.
They have good reason to be more cheerful. Finance chiefs at many companies expect profits and revenues to rebound. A full 65 percent say that profits will increase next quarter, and 37 percent expect profits to grow by more than 5 percent. In addition, 63 percent forecast higher revenues.
There are also indications that companies may be winding down cost-cutting initiatives. More than 47 percent say that capital spending will stay the same next quarter, and an additional 34 percent intend to increase spending. CFOs say they will spend more on travel, benefits, insurance, and employee compensation. Perhaps the best news is that some companies say they will do more hiring over the next year: 37 percent expect to add workers, with 49 percent standing pat and only 14 percent making cuts.
But there the enthusiasm slows. Only 23 percent of respondents say that a broad recovery is under way. And while 22 percent expect it to begin later this year, the largest segment — 26 percent — doesn’t expect it to occur until the first half of next year. CFOs still consider weakness in the U.S. economy to be their number-one business concern, followed by weakness in the global economy and, for the first time, the high cost of benefits. Certainly escalating health-care costs are a major source of anxiety.
U.S. CFOs are generally less sanguine about the global economy. Only 28 percent describe their attitude as “confident” or “very optimistic.” Half of these CFOs are “neutral” on global prospects, and 23 percent are “concerned.”
Worries over the unresponsiveness of the global economy are echoed by financial executives overseas. Roughly a third of CFOs in Europe and Asia have positive economic views overall. And while their attitudes about their own economies are improving, they are still largely pessimistic. Just 20 percent of European CFOs view the European economy over the next year positively, and 30 percent of Asian finance chiefs are confident in the Asian economy. The Asian result is, at least, up from 20 percent last quarter, when effects of the SARS outbreak were at their peak.
Here in the United States, CFOs signaled that they may be ready to resume deal-making activity. Twenty-three percent say they are planning a merger or acquisition in the next year. And 12 percent say they will consider tapping the equity markets.
One note of caution: U.S. CFOs are becoming increasingly nervous about the federal deficit. Nearly one-third of respondents say they are “very concerned” about the potential economic impact of the rising deficit, and another 43 percent are “concerned.”
No Unemployment-Shopping for Telecommuters
A recent decision by a New York state court could have a wide-ranging impact on the nation’s 32 million telecommuters and their employers.
In July, the New York State Court of Appeals ruled that a woman who had worked for a New York company from her home in Florida was not eligible to collect unemployment in New York. She had already been denied benefits in Florida, after her telecommuting arrangement ended when her employer requested that she move to New York and she declined.
The ruling sets a precedent in New York and could influence other cases in which telecommuters attempt to file for unemployment in the state where their employer is located, either because they were turned down in their own state or because the employer’s state pays higher unemployment compensation. “The decision says that [telecommuters] are not at liberty to shop for the best state to collect unemployment in,” says Laura Schneider, a senior partner at Boston law firm Hale and Dorr LLP.
The Never-Ending Story: Health-Care Costs Still Rising
Two new studies confirm what CFOs already feared: health-care cost increases will continue to soar through 2004.
One forecast, by insurance brokers and consultants Aon Corp., estimates that health-plan rates will rise by more than 14 percent, making this the fifth year of double-digit increases. Bill Sharon, a senior vice president of Aon’s health and welfare practice, says that trends in health costs typically go in five-to-seven-year cycles. “The end should be near, but experts are concerned that this cycle will last much longer,” he says. He blames the usual suspects: the aging population, costly drugs, greater use of technology, and higher malpractice premiums. What’s more, hospital consolidations and relaxation of managed-care controls have upped hospital costs. “That one is catching people by surprise,” says Sharon.
But the overall jump is hardly a shocker. A study by insurance consulting firm Milliman USA expects rates for HMOs to rise 14 percent in 2004.
“There is no end to it on the horizon,” says Helen Darling, president of the Washington (D.C.) Business Group on Health, an organization for large purchasers of health care. While the news is not good, Darling says that some employers’ efforts are starting to show results. For example, there has been a sharp increase in the use of generic drugs. “There is a little bit of optimism,” she says, “but there is still a lot of work to do.”
Security Spending Rising, Too, but Not As Much As You’d Think
The United States doesn’t calculate how much Corporate America spends for homeland security — a stunning shortcoming, give that more than 80 percent of the infrastructure is in private industry’s hands. And little of the nearly $40 billion in annual federal and state spending for security goes to the companies on the front lines, including those in such critical industries as electric power, chemicals, and transportation.
In the absence of spending data, a survey conducted among 33 corporate security officers by The Conference Board and sponsored by ASIS International, which represents security professionals, offers at least limited guidance, and the results are surprising. The survey indicates that there has been only modest uptick in security spending at the average company since 9/11. Indeed, the median spending for firms in critical and non-critical industries combined rose only 4 percent. The heaviest increase is in the Northeast, where median security spending rose 9 percent, compared with 2.8 percent elsewhere.
Of the security directors surveyed, 56 percent say they spend from $1 million to $10 million on security, while 15 percent spend more than $10 million. In a way, though, security spending says little about real deterrence of terrorism. Higher awareness is making workplaces less vulnerable, and many companies have been tightening security in ways that their budgets don’t reflect — joining security-oriented industry groups and creating hacker-resistant IT policies, for example.
And the figures do not include higher insurance-related spending, according to Conference Board senior research associate Tom Cavanagh. A separate question shows that a third of risk managers have seen insurance costs rise from 20 percent to 49 percent, while a “remarkable 21 percent of risk managers report that their costs have at least doubled since 2001,” says Cavanagh.