High fuel costs and the potential for higher interest rates have taken some of the shine off the gleaming view of the economy held by CFOs. While finance executives are still overwhelmingly positive, expectations have fallen a few notches from last quarter. According to this quarter’s survey, 70 percent of U.S. finance executives are either confident or very optimistic about the outlook for the domestic economy in the next year, down from a survey high of 72 percent in the last two quarters. However, they continue to expect strong revenue and profit growth for their companies: a solid 77 percent forecast higher sales in the next quarter, and 72 percent say they will increase profitability.
While those figures reflect a strong view of the economy, the prospect for a significant uptick in hiring is still dim. Almost half (48 percent) of the U.S. CFOs surveyed say they plan to keep the same number of employees during the next six months, and 5 percent say they will decrease their number of workers. CFOs, it seems, have lingering concerns about the sustainability of the recovery, and are looking for more concrete signs that it will last before they increase hiring. In fact, finance chiefs still rank weakness in the local economy as their number-one business concern.
The outlook for the global economy is also declining slightly. Forty-four percent of U.S. CFOs have a positive view of the global economy, down from 50 percent last quarter. A less-rosy view of the global economy is shared by their counterparts in Asia, where 50 percent of finance executives are positive, down from 66 percent last quarter. Only in Europe have attitudes about the global economy improved: 62 percent of European CFOs have a confident or optimistic view of the world economy. Yet they still have doubts about the potential of the economy in their own region: just 39 percent of European CFOs hold a positive outlook on the European economy. Certainly European executives have some anxiety over the economic impact of the 10 new countries — including Poland, the Czech Republic, and Hungary — that were admitted to the European Union in May.
Here in the United States, corporate spending is still growing, though at modest levels. The biggest increase in outlays will be for salaries: 55 percent of respondents expect to spend more on wages during the next 12 months. IT spending also remains firm, with 52 percent of CFOs budgeting an increase for the next year. But fewer than half of the companies expect to spend more on office space (23 percent), travel (26 percent), benefits (39 percent), and bonuses (26 percent). About 48 percent expect capital spending to increase in the next quarter, and more than half of those say they will increase this area of investment by more than 5 percent.
CFOs are also returning to the financial markets. Twelve percent of finance executives expect to conduct a debt offering, and 9 percent say they will tap the equity markets in the next 12 months. Another 17 percent say they will complete a merger or acquisition. What effect any potential increases in interest rates will have on the volume of these activities is still unclear. What is more certain is that CFOs will be watching Alan Greenspan and the Federal Reserve Board very closely. While CFOs are optimistic about the recovery, the survey shows that they still believe it is a fragile one.