Wait Till Next Year! CFOs See Good Times in 2002

June 26, 2001 (PLANSPONSOR.com-Chief financial officers predict US economic growth will remain slow during 2001, but foresee an economic rebound next year.

They also anticipate moderate corporate earnings increases over the next twelve months. They do not, however, expect the recently mandated tax rebates to contribute to their firm’s revenues and support an additional 50 to 100 basis point reduction in interest rates.

These are some findings of the most recent quarterly “CFO Corporate Outlook Survey’ conducted by Financial Executives International (FEI) and Duke University’s Fuqua School of Business.

Participating in the survey were 222 CFOs at companies representing a broad range of industries, geographic areas, and revenues.

Cautious Optimism

The CFOs, on average, predict that US GDP will grow by 1.9% during the next 12 months, a slight rise over last quarter’s 1.6% prediction.

Still, 63% of CFOs forecast their companies’ earnings to increase over the next 12 months ? a not uncommon optimism among financial officers.

Fifty-one percent of firms will reduce inventory during the next 12 months, while another 30% will hold inventory levels constant. Inventories will decline 3.1% on average across all companies.

Employment “Line”

Over a quarter (26%) of companies surveyed plan on reducing employment during the next 12 months, but a like number will hold employment steady. However, in the 5-year history of the survey, this quarter and last were the only times that the majority of companies have not planned to increase employment.

Additionally, 39% of companies will reduce overtime during the next 12 months, and 41% will hold overtime constant, virtually the same as last quarter’s plans.

Wages and salaries are expected to increase 3.3% at the average firm during the next 12 months, lower than last quarter’s wage inflation prediction of 4.4%.

Even in a sluggish economy, 58% of firms still expect to increase technology spending in the next 12 months relative to last year’s spending. The revenue-weighted average increase will be 2.2%, compared to 4.4% last quarter.

The Energy Toll

Rising energy prices have contributed to the CFOs’ modest economic outlook. Eighty-five percent of firms report that energy and electricity prices have increased during the past six months — but only one in five firms expects to pass these increased costs on to customers.

Among the firms passing the cost along, rising energy prices will contribute 3.7% to product inflation. Only one in nine firms will pass the increased energy prices along to customers as an energy surcharge.

– Nevin Adams                           editors@plansponsor.com