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Stuck on Hold

Most CFOs in the latest Duke/CFO survey have plans for growth, but weak employment is dampening their spirits.

Finance chiefs remain uncertain about the economy, and their lingering doubts bode poorly for the unemployment rate, according to the findings of the latest 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 that U.S. finance chiefs have, to put it mildly, limited plans to hire.

On average, CFOs expect to increase their full-time domestic employee base by less than 1% over the next 12 months, and a majority say their workforces will not return to prerecession levels until 2012 or later. The resulting negative impact on consumer spending may fuel a vicious cycle in which businesses put off hiring until they see better results, yet results remain stagnant as tightfisted consumers worry about reduced wages, benefits, and employment opportunities.

Consumers aren’t the only ones worrying. While 40% of U.S. 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, those figures are down from the past three quarters.

Credit remains tight at many companies, limiting plans for growth — including growth in employment. Small companies, widely considered to be disproportionately big job producers, are feeling the credit crunch more than large enterprises; a third of companies with fewer than 100 employees report that borrowing has grown more difficult in the past six months.

Bob Pruger, finance chief at The Rudolph/Libbe Cos., says that while the construction company is well capitalized, customers continue to face credit constraints. “Banks still appear to be scared,” he says. “It affects our customers and what they’re willing to do, which means there are fewer projects out there.”

Even at businesses that have successfully weathered the economic crisis, caution prevails. Shari Freedman, CFO at Worldwise, a midsize maker of eco-friendly pet products, says the business has grown over the past two years, but she has been proceeding cautiously nonetheless. She spent much of that time helping the company 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. On the bright side, “This year we are hiring, because we’re growing,” she says. “I would say we are gently stepping on the accelerator.”

Michael Porcelain, CFO at Com-tech Telecommunications, a satellite communications firm, says the firm saw “a marked increase in business in the last few months.” Nonetheless, he says, “We probably could have hired some people but didn’t, because of the uncertainty.” Comtech is now planning to hire as part of the integration of a recent acquisition that will increase the firm’s size by half.

Living in the Future

Despite their reservations about the economic environment, most finance executives do have plans for growth. CFOs say they will increase their spending on capital equipment, technology, research and development, and marketing and advertising over the next 12 months, with each category expected to grow more than forecast last quarter. Nearly half of survey respondents describe their companies as “cautiously pursuing growth,” while another 26% say they are “aggressively pursuing growth.” Just 18% say they are still coping with the impact of the recession.

Eric Winston, finance director at Keen Footwear, a shoemaker based in Portland, Oregon, says he expects revenues to climb between 10% and 20% this year, on top of 10% growth from 2008 to 2009. The company, founded in 2003, “has a lot of upside because brand recognition is still relatively low,” he says. Winston credits Keen’s success during the recession to its ability to be flexible and its recent move to sell product online directly to consumers in addition to sales through its existing network of retailers. The company is hiring, and, according to Winston, “Life is great here.” Yet, of the economy generally, he hastens to add, “It’s pretty scary out there. Everyone thinks we’re at the bottom of the business cycle and no one knows how long we’re going to be there.”

In Europe, where the ongoing sovereign debt crisis has roiled markets and pressured the euro, 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 problems of Greece, Spain, and Italy, but a large majority support the emergency lending measures taken to date by the European Union.

Asia’s finance chiefs remain the most upbeat, with 70% more optimistic about their regional economy than last quarter. CFOs in Asia plan to do more hiring than their peers elsewhere in the world, saying they will increase full-time domestic employment by 5% over the next 12 months, compared with a meager increase in the United States and a 2% decline in employment in Europe.

Kate O’Sullivan is senior editor for strategy at CFO.

CFO Business Outlook Survey, July/August 2010

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