Finance chiefs are still uncertain about the economy, and their lingering doubts continue to hinder employment, according to the latest quarterly Duke University/CFO Magazine Global Business Outlook Survey. The survey, which polled 1,102 senior finance executives worldwide in late May and early June, finds U.S. CFOs have limited plans to hire in the next 12 months, and a majority say their staffing will not return to prerecession levels until 2012 or later.
The resulting negative impact on consumer spending could produce a vicious cycle in which businesses put off hiring until they see better results, and consumers continue to clamp down on spending as they worry about their jobs and face reduced wages, benefits, and employment opportunities.
Credit remains tight at many firms, limiting plans for growth, including growth in employment. Small companies, widely considered to be disproportionately large job producers, are feeling the credit crunch more than large enterprises, with a third of companies with fewer than 100 employees reporting that borrowing has become more difficult in the past six months.
Even at businesses that have successfully weathered the economic crisis and recession, caution prevails. Shari Freedman, finance chief at Worldwise, a midsize maker of eco-friendly pet products based in San Francisco, says the business has grown during the past two years, but adds that she has been proceeding cautiously nonetheless. The company has not had layoffs, but Freedman is wary about hiring. She spent much of the past two years helping Worldwise figure out how to do more with less, by streamlining inventory-management processes, for example, and by reducing the finance department’s monthly close process by nine days.
Still, Worldwise is hiring this year, says Freedman, “because we’re growing and there’s only so much you can do. I would say we are gently stepping on the accelerator.”
Michael Porcelain, CFO at Comtech Telecommunications, a satellite-communications company based in Melville, New York, says the company saw “a marked increase in business in the past few months.” Still, he says, “we probably could have hired some people but didn’t because of the uncertainty.” Now, however, Comtech is planning to hire some new staff as part of the integration of a recent acquisition that will increase the company’s size by half.
Overall, 40% of CFOs say they are more optimistic about the economy than they were last quarter, and 46% say they are more optimistic about their own companies. Both numbers are down from last quarter, but are still well above recession lows.
Finance executives also have plans for growth. CFOs say they will increase their spending on capital equipment, technology, research and development, and marketing and advertising in the next 12 months, with each category expected to grow more than forecast last quarter. Nearly three out of four survey respondents say their companies are in growth mode, with 47% describing their companies as “cautiously pursuing growth” and 26% saying they are “aggressively pursuing growth.” Just 18% say they are still coping with the impact of the recession, and 8% describe their companies as “on the sidelines.”
In Europe, where the ongoing sovereign debt crisis has roiled markets and driven the euro to a four-year low this week, finance executives are less optimistic than their peers elsewhere in the world. Eighty percent say the financial stability of Europe is severely threatened by the financial problems of Greece, Spain, and Italy, but a large majority support the emergency lending measures taken to date by the European Union. Sixty-eight percent of European survey respondents say that the stronger EU nations should provide financial support to their debt-laden neighbors.
Asian finance chiefs remain the most optimistic among those surveyed, with 70% more optimistic about their regional economy than last quarter. Asian CFOs plan to do more hiring than their peers elsewhere in the world, saying they will increase full-time domestic employment by 5% in the next 12 months, compared with just under a 1% increase in the United States and a 2% decline in employment in Europe.