CFOs Giddy About US Economic Prospects

September 30, 2003 ( - In the most upbeat economic forecast in over a year, more Chief Financial Officers (CFOs) are optimistic about the economy than they have been for over a year with corporate earnings and revenues expected to see large jumps in the next 12 years.

Three-quarters (74%) of CFOs are more optimistic this quarter, with a miniscule 8% reporting less optimism, compared to a very similar 70% more optimistic and 7% less optimistic about the economy last quarter (See  CFOs Optimistic About US Economy ).   Further, two-thirds of the CFOs are cheerful about their own company prospects, compared to 50% last quarter, according to the latest release of the Financial Executives International (FEI) and Duke University Fuqua School of Business CFO Outlook Survey.

Eighty-five percent of CFOs are especially pleased with the outlook in corporate earnings, anticipating an increase on average of 16.9% over the next 12 months. Sales revenues are expected to increase for 87% of firms, with an average increase in revenues of 8.1%, both numbers up from last quarter.

The overall sense of good will also shows up in higher expectations about the gross domestic product (GDP).  Last quarter, CFOs expected the GDP to increase by 2.2%, while this quarter GDP is expected to grow by 2.9% over the coming year, the highest GDP forecast in the past three quarters.  

Up, Up and Away

Also seeing the largest projections in over a year are forecasts for capital spending to increase 9% in the next 12 months, compared with only a 1.5% projection the previous quarter.   Further, w hile capital spending is still stuck in the “cautious” mode at half (51%) of the companies, 10% of the surveyed CFOs say their companies are spending “ambitiously.”  This compares favorably with just 6% and 7% spending at that level in the last two quarters.   Expected to benefit the most from projected increases are technology spending, up 4.9% and advertising spending, an increase of 3.2%.

Showing improvement from last quarter’s flat numbers was the 1.1% expected increase in employment.   Overall, 42% of companies expect to increase their number of employees, while 32% plan to hold the current head count steady and only 26% planning layoffs, compared to 32% last quarter, and representing the lowest figures in the past year.

Among the companies that are hiring at a less than normal rate, their hiringplans are roughly equally divided among three scenarios:

  • 36% – hiring may neverreturn to historic levels
  • 33% – hiring expected to return to normal in 2004
  • 31% – hiring expected to return to normal in 2005 or later .

The survey also queried CFOs about the impact of overseas outsourcing.  In contrast to public reports about some very large companies, shifting jobs to foreign countries has not affected domestic employment among 75% of the companies that are hiring at less than normal levels.  However, 7% say that foreign hiring and outsourcing has contributed in an important way to their reduced domestic employment.  The remainder (18%) call it a somewhat important reason for lower domestic hiring levels.