|CFOs: US Economic Optimism Down|
Friday, 30 November 2012 00:00Written by PR Newswire
Survey: U.S. CFOs Express Declines in U.S. Economic Optimism, Delay Expectations of Recovery Due to Fiscal Cliff, Tax Concerns
Amid looming threats to the Eurozone, sequestration cuts and a fiscal cliff, Chief Financial Officers, especially in the U.S., continue to remain uncertain about the future of the economy and their business, as well as the expectation of a recovery, finds the latest "CFO Outlook Survey." According to the survey conducted by Financial Executives International (FEI) and Baruch College's Zicklin School of Business, CFOs are doing more with less, by retaining their current talent, and potentially delaying hiring.
Respondents to the quarterly survey, which polls CFOs of public and private businesses on their economic and business confidence, revealed that U.S. CFOs have grown increasingly doubtful that the U.S. will experience a recovery in the next year. When asked about the timeframe that a U.S. economic recovery would take place, 53 percent believed a recovery would be delayed until at least 2014, an increase from the previous quarter, when only 38 percent predicted a recovery would remain that far out. The number of CFOs who believed the U.S. is already in the midst of a recovery stayed steady (26% versus 22% in Q2), but only 13 percent now trust the U.S. would recover at any point in 2013.
More than three-quarters of U.S. CFOs (76%) stated that their expectations of U.S. economic growth will be impacted by tax increases and potential sequestration. A similar percentage of CFOs (74%) are bracing for impact of the scheduled expiration of Bush-era tax cuts at the close of 2012. Sixty-seven percent of CFOs feel that the current Congress should postpone reductions mandated under sequestration and extend the Bush tax cuts for another six to twelve months, to give the next Congress and the Administration enough time to work out a permanent solution to the fiscal crisis. This is compared to nearly a fifth of U.S. CFOs (21%) who believe Congress should allow sequestration to occur and the tax cuts to expire.
"Post-election, CFOs in the U.S. are expressing alarming concerns over the threat of a fiscal cliff and sequestration, which has a resounding impact on their prospects for economic growth," said Marie Hollein, President and CEO of Financial Executives International. "Respondents to the survey seem to support the postponing of sequestration cuts and extending Bush tax cuts to avoid pushing the U.S. into a potential recession. With the timeline for a decision by the current Congress drawing closer, CFOs are growing more uncertain that the U.S. economy will recover in the near term."
CFOs in the U.S. are also preparing for the full implementation of the Patient Protection and Affordable Care Act (PPACA) by 2014, and planning for potential effects on hiring and benefits in the next two years. While about 44 percent expect no significant impact on hiring and benefits in 2013, CFOs will be forced to make changes in 2014, most commonly through an increase in employee contributions (42%), and decrease in the quality of employee benefits (41%).
Global Economic Optimism Remains Stable; U.S. CFOs Lower Confidence in U.S. Economy and Business Prospects This quarter, the level of optimism toward the global economy among U.S. CFOs, as well as a select number of CFOs from Europe (Italy and France) has remained steady over the previous quarter.
The third quarter CFO Optimism Index for the global economy was 44.20 for U.S. CFOs (compared with 44.10 in Q2), and rose slightly to 45.20 among European CFOs (up two points from Q2). However, U.S. CFO's optimism toward the U.S. economy dipped another four points to 51.60 in the current quarter (from 55.40 in Q2), while European CFOs on average surpassed the U.S. in their confidence of the U.S. economy (from 52.90 in Q2 to 55.90). U.S. CFOs optimism towards the financial prospects for their company also sunk five points from the previous quarter (67.80) to its lowest mark in more than two years (62.70). Optimism of CFOs in Europe toward their companies reached 55.70, a minor increase from Q2 (54.50).
CFOs across both regions lowered many of their projections for the next 12 months. Whereas CFOs in the U.S. stated in August that they expected a 15 percent increase in net earnings, this quarter it has been reduced to a nine percent increase. CFOs in the EU are anticipating a two percent increase in earnings and nearly a five percent increase in revenues. Sixty-two percent of U.S. respondents and 66 percent of European respondents said their company's interest in acquisitions was unchanged relative to the previous quarter. While the number of CFOs who felt M&A interest had increased was significantly smaller (29% in the U.S. and 24% in Europe), the amount of CFOs who experienced a decrease in activity was ten percent among EU CFOs and nine percent among U.S. CFOs. In both regions, the large majority of CFOs saw no change in their company's interest as an acquisition target.
"CFOs appear to be hunkering down in preparation for continued economic stagnation in the U.S. and Europe, as evidenced by low levels of optimism about the economy," said Linda Allen, Professor of Economics and Finance for the Zicklin School of Business at Baruch College. "The survey suggests that the CFOs expect a delay in the U.S. economic recovery to 2014 due to three major areas of concern: first, uncertainty about European stability and the fiscal cliff in the U.S., second, high employment costs, with 93% of U.S. CFOs expecting increased employee healthcare costs, and third, weakening revenue and earning expectations, resulting in reduced growth and acquisition opportunities."
CFOs Maintain Headcount, Take Steps to Retain Talent When asked about their plans for hiring, 58 percent of U.S. CFOs stated that they plan to hire additional staff in the next six months, while about a third (35%) have no plans to hire. On the contrary, European CFOs are split on their plans, with 47 percent planning to hire, and a similar amount (45%) intending to halt hiring for the next six months. Of those that are hiring, CFOs are primarily seeking mid-career professionals (54% in the U.S.; 42% in the EU) and experienced and skilled technical workers (44% in the U.S.; 46% in the EU). This only varies slightly in Europe. While U.S. CFOs stated that they are also looking for entry level college graduates (49%), EU CFOs were seeking more entry level high school graduates (42%).
Although CFOs are cautious in their prospects for hiring, they revealed some success in retaining the workforce they currently have. The majority of CFOs in the U.S. and Europe have not been forced to reduce headcount over the past 12 months (69% in the U.S. and 56% in Europe). For the third of CFOs who had to make headcount reductions, on average they lowered their staff by 13 percent in the U.S. and 10 percent in Europe. A decline in sales was the main reason attributed to this reduction. As CFOs take specific actions in the current environment to retain their current talent, CFOs in the U.S. are paying significant attention to training and development (46%), compensation, and ensuring opportunities for career advancements (38% each). Training and development is also a top area of focus for European CFOs (42%), followed by office atmosphere (33%) and team building (29%).
U.S., Europe CFO Share Eurozone Concern; Diverge on Fiscal Cliff, Election and Other Projections The CFO Outlook Survey polled CFOs across both regions on a range of topics from the Eurozone, China, and the Fiscal Cliff, as well as key forecasts on economic indicators. Highlights from the findings include:
Additional Findings Nearly a third of U.S. respondents (31%) stated that their business has been negatively impacted by Hurricane Sandy. Of those CFOs from the impacted companies, their employees and staff (40%) were most affected, followed by their supply chain (34%). About a quarter of U.S. CFOs (24%) made adjustments to allow employees to work remotely, and 32 percent of respondents said their company had made donations or contributions to various organizations to help victims impacted by the
Full survey results and historical data comparisons are available at www.financialexecutives.org
Overview of the Survey: This quarter, the CFO Outlook Survey, conducted by Financial Executives International and Baruch College's Zicklin School of Business, interviewed 180 corporate CFOs from the United States, 32 corporate CFOs from Italy and 20 corporate CFOs from France from November 9 – 20. CFOs from both public and private companies and from a broad range of industries, revenues and geographic areas, including some off-shore companies, are represented. The U.S. survey respondents are members of Financial Executives International; France survey respondents are members of Association Nationale Des Directeurs Financiers Et Du Controle De Gestion (DFCG); and Italy survey respondents are members of Associazione Nazionale Direttori Amministrativi E Finanziari (ANDAF). Financial Executives International has been conducting surveys gauging the country's economic outlook from the perspective of CFOs for more than 11 years.