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Are We There Yet?

Our quarterly Global Confidence Survey reveals that finance chiefs are more hopeful about economic prospects over the next year than they have been since December 2000.
Joseph McCafferty, CFO Magazine
September 1, 2003

Prepare the bulls: CFOs are feeling better about the outlook for the U.S. economy. While few are ready to declare the downturn over just yet, most are increasingly optimistic. In fact, finance chiefs are more hopeful about economic prospects over the next year than they have been since December 2000, when the dot-com boom was in its final throes.

According to our quarterly Global Confidence Survey of financial executives, 58 percent of U.S. respondents say they are either "confident" or "very optimistic" about the domestic economy over the next year. That's up sharply from the 36 percent holding positive views last quarter. It's also the first time the confidence figure has risen above 50 percent since the last quarter of 2000, when 67 percent of CFOs were upbeat about the economy.

They have good reason to be more cheerful. Finance chiefs at many companies expect profits and revenues to rebound. A full 65 percent say that profits will increase next quarter, and 37 percent expect profits to grow by more than 5 percent. In addition, 63 percent forecast higher revenues.

There are also indications that companies may be winding down cost-cutting initiatives. More than 47 percent say that capital spending will stay the same next quarter, and an additional 34 percent intend to increase spending. CFOs say they will spend more on travel, benefits, insurance, and employee compensation. Perhaps the best news is that some companies say they will do more hiring over the next year: 37 percent expect to add workers, with 49 percent standing pat and only 14 percent making cuts.

But there the enthusiasm slows. Only 23 percent of respondents say that a broad recovery is under way. And while 22 percent expect it to begin later this year, the largest segment — 26 percent — doesn't expect it to occur until the first half of next year. CFOs still consider weakness in the U.S. economy to be their number-one business concern, followed by weakness in the global economy and, for the first time, the high cost of benefits. Certainly escalating health-care costs are a major source of anxiety.

U.S. CFOs are generally less sanguine about the global economy. Only 28 percent describe their attitude as "confident" or "very optimistic." Half of these CFOs are "neutral" on global prospects, and 23 percent are "concerned."

Worries over the unresponsiveness of the global economy are echoed by financial executives overseas. Roughly a third of CFOs in Europe and Asia have positive economic views overall. And while their attitudes about their own economies are improving, they are still largely pessimistic. Just 20 percent of European CFOs view the European economy over the next year positively, and 30 percent of Asian finance chiefs are confident in the Asian economy. The Asian result is, at least, up from 20 percent last quarter, when effects of the SARS outbreak were at their peak.

Here in the United States, CFOs signaled that they may be ready to resume deal-making activity. Twenty-three percent say they are planning a merger or acquisition in the next year. And 12 percent say they will consider tapping the equity markets.

One note of caution: U.S. CFOs are becoming increasingly nervous about the federal deficit. Nearly one-third of respondents say they are "very concerned" about the potential economic impact of the rising deficit, and another 43 percent are "concerned."




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