CFOs predict another 14 months of recession

Duke University and CFO Magazine issued on Mar. 4 a Global Business Outlook Survey in which chief financial officers in the U.S. say the global recession will last “well into 2010,” according to a statement from Duke and the magazine.

The survey, which concluded Feb. 27, also found that the majority of the 1,268 CFOs surveyed are concerned about the actions of President Obama’s administration and Congress, and only one-third believe that federal stimulus activities have helped the economy.

“This is very troubling,” Kate O’Sullivan, senior writer at CFO Magazine, noted in a press release. “Throughout the history of our survey, CFOs have shown a remarkable ability to predict future economic conditions. They anticipated the current recession as far back as September 2007. Given the CFOs’ track record, the historic pessimism CFOs are currently expressing certainly indicates a tough road ahead in 2009.”

Following is a summary of findings.
• Only 35 percent of CFOs say the U.S. economic recovery will begin in 2009, with most CFOs expecting recovery to begin in 14 months. European (16 months) and Asian CFOs (13 months) also expect the recession to last well into 2010.

• Employment is expected to fall in the U.S. (5.6 percent reduction), Europe (7.6 percent reduction) and Asia (3.2 percent reduction) over the next year. In addition to layoffs, a majority of firms report wage freezes or cuts, as well as reductions in hours worked.

• Weak consumer demand and financial market woes are major external concerns for CFOs around the world. Working capital management is a primary internal concern, as is maintaining employee productivity and morale.

• More than two-thirds of U.S. CFOs have grown more pessimistic about the U.S. economy during the last quarter. On a scale of 0 to 100, U.S. CFOs rate the economic outlook at an all-time low of 40. European and Asian CFOs are similarly pessimistic, rating their economies at 43 and 47, respectively, on a scale of 0 to 100.

• Nearly 60 percent of U.S. companies indicate they will institute a hiring freeze for the next year. In addition, 57 percent will enforce a wage freeze or reduction, with one in five companies expecting to reduce wages over the next year. Thirty-nine percent of companies will reduce employees’ work hours.

• Among the industries surveyed, service and consulting firms anticipate the strongest earnings in 2009, followed by health care companies. Public manufacturing firms expect earnings to fall 30 percent.

• Credit markets remain extremely tight. Among companies that report they have been directly affected by credit market turmoil, nearly 60 percent have had trouble accessing capital, and nearly half report a higher cost of credit (relative to pre-crisis costs).

• U.S. CFOs are lukewarm on President Obama’s policy ambitions. Corporate concern about the new administration and Congress ranks as their third biggest external concern. About 32 percent of CFOs indicate they feel the economy has been helped by the economic stimulus actions taken to date, equal to the 32 percent who indicate the economy is worse off. Another one-third feel the stimulus efforts have made no impact. Finally, more than half (53 percent) of CFOs say their companies would be worse off with a national health care system, compared to only 19 percent who say their businesses would be better off.