Corporate CFOs marginally optimistic

A recent survey of corporate chief financial officers from the U.S., Asia and Europe found that most of them were optimistic about the economic outlook despite tough near-term conditions.

The Duke University/CFO Magazine Global Business Outlook Survey, concluded May 29, asked 1,309 CFOs from a broad range of global public and private companies about their expectations for the economy. The research has been conducted for 53 consecutive quarters.

A key finding of the survey is that most CFOs say the recession will continue for the remainder of 2009, with many companies still facing “severe credit constraints.”

“Our survey carries an important message: Don’t put too much weight on the ‘soft’ data like consumer confidence. Recovery requires sustained confidence, and such confidence is forged by stronger economic fundamentals,” Campbell Harvey, founding director of the survey and international business professor at Duke’s Fuqua School of Business, said in a statement. “The economic fundamentals – employment, capital spending, the cost of credit – are still fundamentally troubling.”

A summary of the key findings:
• Employment is expected to fall in both the U.S. and Europe (by approximately 5.5%) and the U.S. unemployment rate could reach double digits. In Asia, employment is expected to drop 1.4% over the next year.

• Capital spending will decline by more than 10% in the U.S. and Europe and by 3% in Asia.

• CFO optimism is rising from its recent all-time lows, with 54% of U.S. and 63% of Asian CFOs more optimistic than they were last quarter. Only 30% of European CFOs are more optimistic and 31% are less optimistic.

• CFOs expect earnings to fall at public U.S. companies by 4% over the next 12 months, down from expected earnings growth of 3% a year ago. Capital spending is expected to decline by more than 10% in Europe and the U.S. and by about 3% in Asia.

• About six in 10 U.S. companies report they are credit-constrained, meaning they have had difficulty locating credit and/or the cost of available credit is much higher than before the crisis. Among these constrained firms, 42% say credit market conditions have deteriorated during 2009, while only 23% say conditions have improved.

• Sixty percent of constrained companies report they have tried to negotiate more favorable terms with their lenders, but only one-third of these companies have been successful. One bright spot for these constrained companies is that about half have negotiated more favorable terms with suppliers. This does, of course, put strain on those suppliers.

• Concerns about weak consumer demand and credit markets remain the top two external concerns for U.S. CFOs. They are also concerned about the policies of the federal government.

• The top internal concerns are the inability to plan due to heightened economic uncertainty, working capital management and liquidity, and maintaining employee morale.