Optimism is growing among the CFO ranks as finance executives see an end to the Great Recession. Fifty-eight percent of finance execs say they are more optimistic about the economy than they were last quarter, and 48% say they are more optimistic about their own companies than they were three months ago, according to the latest Duke University/CFO magazine Global Business Outlook Survey, which queried 657 U.S. finance executives in early September. For the first time in a year, CFOs expect earnings growth over the next 12 months.
J.B. Blackwelder, finance chief at ThorWorks Industries, a maker of specialty coatings and equipment for use in construction, says his business has been flat over the past year, which he considers a victory. “We expect another basically flat year in 2010, but then I’m hoping we can move into fast-growth mode because we are really positioned to move forward,” he says. Some competitors have struggled, says Blackwelder, while ThorWorks has retooled machinery, examined its sourcing processes, and honed its collections procedures.
Shawn Carroll, CFO at Crown Services, a temporary-staffing firm, says his business, typically a leading indicator because companies often hire temporary staff before committing to full-time workers, has picked up by about 15% compared with earlier in the year. “We’re actually getting some orders,” says Carroll. “But it’s slow going.”
Indeed, while CFOs are feeling notably better than they were last December, when just 9% said they felt more optimistic than they had the previous quarter, less than 20% believe the recovery is under way; another 20% think it will begin this year. A full 50% predict recovery in 2010, and the remaining 10% don’t see recovery until 2011 or later. What recovery will look like is also up for debate. “I think we’re going to go into a corrected economy where people are going to have to learn how to make money at lower margins, and companies are going to have to watch their costs significantly,” says Carroll.
Perhaps reflecting this cautious mood is the fact that while finance chiefs plan to loosen some corporate purse strings in the coming year, they are still holding back in other spending categories. CFOs expect spending on advertising, research and development, and technology to be flat over the next 12 months after several quarters of decline. Capital spending is still expected to shrink, although by much a smaller percentage than last quarter. “These numbers are all moving in the right direction, and I think that movement is preparation for the future,” says John Graham, finance professor at Duke’s Fuqua School of Business and the director of the survey. “We’re treading water now instead of sinking. Still, we’d really like to see positive numbers.”
While spending in many areas has stopped declining — small comfort, perhaps, but comfort nonetheless — there are more layoffs to come. Even though more than 60% of survey respondents have smaller workforces today than they did before the recession began, more than 40% plan to eliminate jobs in the year ahead. Of those CFOs who have made layoffs, just 13% expect to return to prerecession staffing levels in 2010. Nearly a quarter say they may never reach those levels again.