The latest Duke University/CFO Magazine Global Business Outlook Survey found that U.S. and European chief financial officers do not expect their firms to start hiring or increase capital spending in the near term. However, optimism seems to have improved, with U.S. CFOs rating the overall economy at 56 on a scale of 1-100, compared with a 52 last quarter.
Most firms will take several years to return to pre-recession employment levels and some expect to operate with permanently reduced workforces.
The survey, which concluded Sept. 11, 2009, asked 1,537 CFOs from a broad range of global public and private companies about their expectations for the economy. The research has been conducted for 54 consecutive quarters.
Some key findings, according to a press release:
- 43% of U.S. companies expect to reduce their workforce over the next year. Among companies that have recently laid-off employees, only 13% say their workforce will return to 2007 levels sometime next year. In contrast, companies plan to increase their offshore workforces by about 3% over the next year.
- Capital spending is expected to continue to decline over the next 12 months, with U.S. companies expecting to decrease capital spending by 3% on average. Of the corporate spending deferred since the start of 2008, 58% of that spending has been postponed indefinitely and one-fourth cancelled permanently.
- Credit problems remain, with 56% of U.S. firms reporting they are adversely affected by credit market conditions, with higher borrowing costs being the biggest problem. Lack of credit availability and restrictive borrowing terms are also problematic.
- CFOs’ top concerns about the overall economy include weak consumer demand, federal government policies, and credit markets. Top concerns about their own businesses include difficulty planning due to economic uncertainty, liquidity management and maintenance of employee morale.
“The economy is showing signs of life in the U.S., with CFOs expecting earnings to grow over the next year and corporate optimism improving again this quarter,” said Kate O’Sullivan, senior writer at CFO Magazine. “While this suggests that the overall economy is stabilizing, the employment picture continues to deteriorate. Western economies continue to operate conservatively in terms of headcount. This is troubling because job security – and along with it, the entire consumer sector – will remain under stress for the foreseeable future. We expect it will take two to three years, maybe longer, before employment returns to year-end 2007 levels. This will dampen economic growth for several years.”
On a more positive note, CFOs expect modest growth in earnings (up 3%), wages (1%), and productivity (2.5%) over the next year. They also expect to begin stockpiling cash reserves again in 2010 (up 4%).
More details on the results of this CFO survey can be found at www.cfosurvey.org.
