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As optimism sinks to a 12-year low, CFOs predict cuts across the board as they brace for a long recession.
Kate O'Sullivan, CFO.com | US
December 10, 2008
For those searching for a glimmer of hope in the current economic news, the latest CFO Magazine/Duke University Global Business Outlook Survey is not the place to look. With CFO optimism plummeting to its lowest level in the 12-year history of the survey, 81 percent of finance executives say they are less optimistic than they were last quarter. Most see no end to their economic misery for at least a year.
The survey, which closed Dec. 5, and includes results from 1,275 senior finance executives in the U.S., Europe, and Asia, reflects the global scope of the recession. Nearly 60 percent of U.S. finance chiefs do not expect the domestic economy to begin to recover until the fourth quarter of 2009 or later, while 71 percent of their European counterparts say their own local economies will remain stalled until at least the end of next year as well.
American and European CFOs say they expect to lay off 5 percent of their employees on average, in a significant jump from last quarter when U.S. CFOs anticipated cuts of less than 2 percent and Europeans were still forecasting hiring growth. U.S. firms will also reduce their outsourced workforces by 2 percent. Asian finance chiefs plan smaller cuts, reporting that they expect to reduce headcount by half a percent over the next 12 months.
As a result of the dramatically changed employment picture, finance chiefs are much less concerned about attracting and retaining qualified employees than they have been in the past, when the issue has regularly rated as CFOs' top concern about their own companies. Instead, the top internal concern for CFOs this quarter is their ability to forecast results, followed closely by anxiety about maintaining employee morale and productivity in the face of the recession.
Finance chiefs also continue to worry about consumer demand — an issue that won't be helped by the rash of mass layoffs — as well as the constrained credit markets. Sixty percent of finance executives say their companies have been affected by the increased cost or reduced availability of credit. Among companies rated B and lower, that number soars to 79 percent. About a third of CFOs say their companies have had difficulty establishing or renewing a bank line of credit. For some, like those who banked with Lehman Brothers, credit lines have simply vanished. More than half of survey respondents say that their ability to access credit in the current environment has limited their ability to pursue attractive investments.
CFOs plan to cut sharply in areas other than payroll. Finance chiefs will slash their capital spending budgets by more than 10 percent in the coming year. Marketing and advertising spending will drop by 7 percent, while tech spending will fall by 4 percent. Overall, finance chiefs forecast a 9 percent decline in earnings, a stunning reversal from this time last year, when they forecast earnings growth of 7 percent. Companies will also cut their dividends by an average of 3 percent, according to the survey.