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CFO optimism hits a record low as credit-market worries spread to the finance department.
Kate O'Sullivan, CFO Magazine
October 1, 2007
CFO optimism plunged to a six-year low in this quarter's Duke University/CFO magazine Business Outlook Survey, with a record 62 percent of U.S. finance executives saying they felt more pessimistic about the economy than last quarter. Ongoing worries about consumer demand and the cost of labor, combined with new concerns about credit-market turmoil, prompted pessimistic respondents to outnumber optimists four to one.
Only 14 percent of survey respondents were more optimistic about the economy than they were last quarter, while 25 percent said their views were unchanged.
"I'm not sure we've seen the full fallout from the whole subprime/housing meltdown," says Suku Radia, CFO at Meredith, the Des Moines–based publisher, adding that he is a little bit less optimistic than he was last quarter.
Tony Aukett, finance chief at Continental Paper Grading, a supplier to the construction industry, says he's feeling "a lot less optimistic" than he was last quarter. "Our big concern is how a slowdown in construction will affect the rest of the economy. I can't see how the sector will continue to grow given the credit issues."
More than a quarter of all respondents said the tightening credit markets had affected them directly, either through increased borrowing costs or through reduced availability of credit. Most of those affected were delaying or reducing capital spending, or holding off on hiring.
Finance executives also said they expect a significant slowdown in mergers and acquisitions. This was in marked contrast to the previous quarter, when they forecast a strong deals environment into 2008. Half of respondents reported that the slowdown has already begun. Most cited the increased cost of borrowing as a reason for the drop-off. CFOs did, however, predict that remaining M&A activity will shift to corporate dealmakers and away from the financial buyers who have dominated the scene in recent years.