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Business Outlook Survey

With worries about the costs of labor, fuel, and credit, CFOs' expectations for the economy hit a new low.

Finance chiefs are not predicting a very happy new year. A record-breaking 72 percent of them say they are less optimistic about the economy than they were last quarter, while just 9 percent are more optimistic, according to the latest Duke University/CFO magazine Global Business Outlook Survey. Pessimistic survey respondents outnumber optimistic ones by an 8-to-1 margin. A full 40 percent of CFOs predict a recession in 2008.

The reasons for such low spirits are many: but top concerns include the cost of labor, consumer demand, and the costs of fuel and health care. Credit-market turmoil continues to worry finance chiefs as well, with about a third of companies directly affected by the upheaval, including 19 percent of AAA-rated respondents. Most reported feeling little impact from the Federal Reserve’s interest-rate cuts to date.

Among those feeling the credit crunch, nearly a third are delaying or reducing capital spending, and a quarter are holding off on hiring. CFOs forecast an anemic domestic employment growth rate of just 0.5 percent for the year.

The declining dollar has had some positive effects, particularly for companies with significant revenues coming from overseas. For those with foreign sales, 34 percent say the weaker dollar has helped their exports, and 35 percent say it has bolstered their competitive position abroad. Profits from foreign operations have helped support U.S. parent companies more than in past domestic slowdowns, according to 80 percent of respondents. On the other hand, some say they’ve been hurt by higher raw-material costs due to the dollar’s devaluation.

Finance executives are gloomy in Europe as well, with 56 percent feeling more pessimistic than they did last quarter. But Asia continues to be a bright spot — 62 percent of CFOs there say they are more optimistic than last quarter, and they forecast healthy increases in both employment and capital spending in 2008.

CFO optimism; earnings, spending, and wage forecast; credit-turmoil response; effect of weak dollar

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