A Guarded Employment Diagnosis in a Slow Recovery

The latest Duke/CFO Business Outlook Survey shows U.S. finance chiefs remain optimistic, but are wary of hiring.

Optimism in the U.S. business environment was stuck in something of a holding pattern at year-end, but at least was heading in the right direction, according to the results of the Duke University/CFO Global Business Outlook for the fourth quarter of 2013. In this quarter’s survey, we polled 400 finance leaders at U.S. companies of all sizes, as well as more than 600 executives from other regions of the world.  U.S. finance executives maintained a reasonably positive opinion of the underlying economy, and continued to have confidence in their own businesses. But the survey also showed that this confidence doesn’t always translate into improved prospects for employment — especially in light of uncertainties over the impacts that implementation of the Affordable Care Act (ACA) might have.

CFOs in this quarter’s survey gave their optimism in the U.S. economy a relatively strong rating of 57.2 out of 100. While this represents a decline of a percentage point over the third-quarter view, it remains high enough to suggest that U.S. finance leaders continue to be more bullish than bearish about their country’s prospects. They may think that economic improvement continues at a snail’s pace, but nevertheless, they still see it as improvement.

Revenues and earnings are both expected to grow moderately throughout 2014, and U.S. companies will continue to invest in their businesses. Revenue expectations took another tick upward from the previous quarter — pushing them to 8.3 percent over the next year — while the outlook for growth in capital spending continued to hover around 6 percent annually.

U.S. public companies had an even stronger outlook for earnings growth, building on a jump first witnessed in the third quarter when U.S. expectations for earnings outstripped those of fast-growing Latin American companies for the first time in 2013. In the fourth-quarter survey, U.S. finance chiefs from public companies were looking for earnings growth of 14.3 percent, on average, through next year. Latin American expectations subsided somewhat from their mid-year peak, and finance executives from that region anticipated earnings would grow by 8.5 percent in 2014.

But hopes for better financial performance may not be enough to support a rebound in employment at U.S. companies. Finance executives anticipate that their companies will be making some hires over the next 12 months, but not at a pace that is likely to make much difference in national unemployment figures. Expectations for both full-time and temporary employment growth in 2014 remained subdued at around 1.5 percent. While the economic recovery may not be a completely jobless one, as some had feared, these results suggest many companies are pulling back on the reins.

Caring about Health Care
The results from this quarter’s survey also suggested that the employment scene is not likely to be helped much by the anticipated implementation of the ACA. Survey responses indicated that finance executives are still sorting out what consequences the Act may have on employment strategies, and they are considering a range of possible reactions. While respondents largely were unwilling to say outright that employee numbers would go down as a result of the ACA, the survey provides some evidence that companies will be “much more cautious in hiring due to healthcare costs,” as one respondent writes. Potential responses could include delaying hires, cutting some employee hours to below the 30-hour-a-week threshold that triggers benefits or hiring more new workers at reduced hours.

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