The second-quarter Duke University/CFO Magazine Global Business Outlook survey found that uncertainty about U.S. regulatory and trade policies is putting some business expansion on hold.
More than one-third of U.S. survey respondents (36%) report that the level of uncertainty their companies face is currently higher than normal. Among the respondents whose companies face increased uncertainty, 58% say that the uncertainty will cause their firms to proceed at a slower pace with or delay business expansion.
What particular aspect of uncertainty is keeping U.S. CFOs from pulling the trigger on growth initiatives? Health care policy was cited by 33% of respondents, followed by regulatory policy (32.5%), economic growth (29.4%), and tax policy (27.7%).
U.S. finance chiefs were also asked which aspects of trade and tax policies are holding back their company’s plans for expansion and new projects. The following four aspects were the most commonly mentioned:
- Trade deals (27.6%)
- Income tax rate for C-corporations (26.9%)
- Income tax rate for pass-through businesses (26.9%)
- Proposed border tax (25.4%)
U.S. CFOs mentioned several ways in which uncertainty about the direction of federal government policies are putting a crimp in their business plans. Several finance chiefs indicated that plans for expansion into Mexico were cut back or put on hold. Others indicated that the delay in tax cut legislation has led them to pare back capital expenditures or become more conservative with spending in general.
Optimism Still High
So far, the stagnation in Washington is not souring CFOs on the overall economic outlook.
The Duke/CFO optimism index for the United States fell slightly this quarter to 67 on a 100-point scale. That’s two points lower than last quarter but still above the long-run average of 60. Hiring plans are stronger than one year ago, and U.S. companies expect to pay higher wages, with median wage growth of about 3%, over the next 12 months. (Finance chiefs in the construction and tech industries expect wage growth to be higher than 3%.)
The most pressing concerns of top management of U.S. companies are, in order of mention, difficulty attracting/retaining qualified employees, government policies, the cost of employee benefits, economic uncertainty, data security, and regulatory requirements.
CFOs also remained optimistic in other parts of the world.
CFO optimism was up in Europe, only a notch below U.S. optimism. European finance chiefs expect capital spending to strengthen and employment to grow moderately (1.7%) in the next 12 months. The top concerns of Europe’s CFOs include economic uncertainty, attracting and retaining qualified employees, and governmental regulations and policies, in that order.
About one in five European companies say they are delaying expansion due to uncertainty about regulations and the economy. Shortage of funding and of qualified employees is limiting the ability of European companies to pursue certain value-creating projects, European CFOs indicate.
In Asia, CFO optimism increased to nearly the same level as in the United States. CFOs of Asian companies project capital spending will rise 5% in the next 12 months and employment will grow 2.7%. The top concerns of finance chiefs in Asia are difficulty attracting employees, currency risk, and falling employee productivity.
About one-third of finance chiefs say uncertainty about economic growth and tax policy is greater than normal, but few Asian firms are slowing expansion plans in response. Too much uncertainty and overly optimistic projections are primary reasons that some value-creating projects are not always pursued.
Latin American CFOs indicate moderate optimism, up from very low levels one year ago. After dropping 6 months ago, the optimism of CFOs of Mexican companies has almost fully recovered. Still, there are significant concerns about economic uncertainty and weak demand. For all of Latin America, business spending will be flat and full-time employment will fall, according to finance chiefs. More so than in other parts of the world, CFOs in Latin American say they will delay or cancel expansion plans due to economic and political uncertainty. Shortage of funding is the top reason for not pursuing all value-creating projects.
Business optimism in Africa is the lowest in the world. CFOs’ outlook for employment is weak. The biggest concerns of CFOs of African companies are economic uncertainty, volatility of the political situation, and governmental policies. Fifty-five percent say that uncertainty is worse than normal, and among those firms more than half are holding off on business expansion in response. Shortage of funding limits the ability of companies in Africa to pursue value-creating projects, CFOs say, in addition to projects not being core to the firm and scarcity of management’s time.
Detailed results, including tabular summaries of the numbers in this release and results from previous surveys, are available at www.cfosurvey.org
This is the 85th consecutive quarter the Duke University/CFO Global Business Outlook survey has been conducted. The survey concluded June 9, and generated responses from nearly 750 CFOs, including 377 from North America, 75 from Asia, 130 from Europe, 120 from Latin America, and 41 from Africa.