CFOs not optimistic on economy

The Duke University/CFO Magazine Global Business Outlook Survey which concluded last week showed a high level of concern amongst top financial officers in major organizations worldwide. Of note are the CFOs ideas regarding employment and credit where they are less upbeat than I expected. Their views that credit markets remain tight and that employment growth will remain subdued dovetail with some of the comments we have heard from small businesses in the U.S.

Here is what the press release said.

Optimism about the U.S. economy has fallen back to recession levels among chief financial officers (CFOs), who foresee minimal increases in expected hiring, weak consumer demand and heightened economic uncertainty.

Credit is still tight for small firms and many firms continue to hoard cash. Without improvement in the economy, CFOs say earnings growth and capital spending will falter within six to 12 months. 

These are some of the findings of the most recent Duke University/CFO Magazine Global Business Outlook Survey. The survey, which concluded Sept. 10, asked 937 CFOs from a broad range of global public and private companies about their expectations for the economy. (See end of release for survey methodology.) The research has been conducted for 58 consecutive quarters. Presented results are for U.S. firms unless otherwise noted.


— CFO optimism about the U.S. economy has fallen to 49 on a zero-to-100 scale, well below the rating of 58 from the last quarter. Pessimists outnumber optimists four-to-one. European CFOs’ optimism rate is 58; Asian CFOs’ rate is 70.

— Half of CFOs say they will cling tightly to cash due to economic uncertainty and as a liquidity buffer. The other half will spend some cash reserves in the next year, primarily for investment, to pay down debt and to make acquisitions.

— Earnings are expected to rise 12 percent and capital spending almost 7 percent in the next 12 months. However, nearly half of CFOs say unless the overall economy improves, there is only a six-month window during which they can maintain this level of growth.

— U.S. CFOs expect to increase domestic full-time employment by 0.7 percent in the next year. Nearly one-fourth of all recent hires have been contract and temporary employees.

— Credit markets remain tight, especially for small companies. Most CFOs believe financial reform will add costs and restrictions that will dampen lending.

— CFOs’ economy-wide concerns include federal government policies, weak consumer demand, price pressure and the weak national employment outlook. By a wide margin, the top concern among CFOs about their own businesses is the struggle to maintain profit margins, followed by rising health care costs and low employee morale.

— Exports are expected to increase by 50 percent over the next five years.

The last bit about exports seems aggressive given the views expressed in the earlier bullet points. The part about maintaining high profit margins does not dovetail with Wall Street analysts’ expectations but it does bolster comments made recently by John Hussman and John Lounsbury about mean regression in margins.

Bottom line: it is certainly not all clear for the global economy. The main points of weakness are G7 consumer demand, employment and credit growth.

  1. Jon says


    This seems like a pretty good reason to buy stocks. You see, nowhere did you say that we’re all gonna be dead tomorrow. Thus equities are a good idea (sarcasm alert!).

    Another reason to buy stocks is that at some point in the next fifty years, stocks will prove to have been a wise purchase.

    So, if 1) we’re not all going to die tomorrow, and 2) stocks will be a good investment (eventually, at some point, and at least for a few minutes), I say we lever up. 3x Beta is the new Alpha!

    Sorry for the bout of insanity.


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