Business Outlook Survey

CFOs don't like what they see, and are reining in spending.


Finance executives entered the summer doldrums early this year as their optimism about the U.S. economy approached a five-year low. They predict slower growth in capital spending, technology spending, and advertising spending, and they have virtually no plans for domestic hiring.

In the most recent Duke University/CFO Business Outlook Survey, only 26 percent of CFOs are more optimistic about the economy than they were last quarter, while 30 percent are more pessimistic. In contrast, 35 percent of finance chiefs were more optimistic last quarter.

Concerns about the cost of labor and the shortage of skilled workers are among the top worries. Survey respondents expect wages and salaries to increase more than 4 percent on average during the next year. John Bax, finance chief at Sentient Jet, a private-jet company, says he has seen the labor market tighten. “People are coming back to me saying, ‘The budget for this position is too low. We need to bump that salary up in order to make a hire,'” he says.

Bob Gold, CFO at United Plastics Group, a contract manufacturer, says he has no plans to increase staff at this point. “We’re very tightly controlling our labor costs, including the cost of health care,” he says. Other CFOs clearly agree with him: fewer than 1 percent plan to increase hiring in the coming year.

CFOs are noticeably cheerier about mergers and acquisitions, with a full 87 percent forecasting a strong market for deals into 2008. More than a third plan to increase M&A activity, with consulting, health care, and technology the hottest sectors. Private-equity buyers could eventually push prices out of reach, however, bringing an end to the buying binge, say respondents.

In Europe, finance executives are also less optimistic than they were last quarter, but they are more positive than their U.S. counterparts. Asia’s CFOs are the most confident of the group, and plan to increase hiring and capital spending during the next 12 months.

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