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Looking Up

Finance chiefs are more optimistic for the second straight quarter, but the employment picture remains bleak.

In mid-September, Federal Reserve Board chairman Ben Bernanke told an audience at the Brookings Institution that “the recession is very likely over at this point.” He may well be right, judging from the growing optimism of respondents to the latest Duke University/CFO Magazine Global Business Outlook Survey, which polled 657 U.S. finance executives in early September. But if the economy has indeed taken a turn for the better, the same can’t be said for employment, based on the plans described by respondents.

More than half of the CFOs polled — 58% — say they are more optimistic about the economy than they were last quarter, while 48% are more optimistic about their own companies than they were three months ago. And for the first time in a year, CFOs expect earnings growth over the next 12 months.

That’s not to say that most finance executives think a recovery is actually under way. While they are feeling much better than they did last December, when just 9% were more optimistic than they had been in the previous quarter, just 26% of them believe the recession is over. Another 13% think economic recovery will begin this year, while fully 60% say it will wait until 2010 or later.

Shawn Carroll, CFO of temporary-staffing firm Crown Services, says an uptick in his industry is usually a leading indicator of economic recovery. And Crown’s business is improving: sales have increased by about 15% compared with earlier in the year. “We’re actually getting some orders,” says Carroll.

What the recovery will look like is open to 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.

Such caution is widespread among finance chiefs, as they plan to loosen only a few corporate purse strings in the coming year. CFOs expect spending on advertising, R&D, and technology to be flat over the next 12 months, while capital spending is expected to continue to shrink, although at a slower pace. Yet John Graham, finance professor at Duke’s Fuqua School of Business and director of the survey, says these numbers “are all moving in the right direction. We’re treading water now instead of sinking.”

CFOs who are more optimistic about their economy than last quarter

More Layoffs Ahead

One area where the numbers continue to sink is employment. More than 60% of survey respondents have made layoffs since the recession began, and more than 40% plan to eliminate jobs in the year ahead. Of those CFOs who have made layoffs, just 13% expect staffing to return to prerecession levels in 2010. Nearly a quarter say they may never reach those levels again.

Graham says a number of factors are contributing to the bleak employment outlook. For one, many companies have furloughed workers rather than making layoffs; as business starts to pick up, they will likely bring those workers back full-time as a first step. Companies may also ask some employees to work overtime, rather than make new hires. “Those two things let you potentially increase production without taking the risk of increasing your workforce,” says Graham.


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