The Economy

CFO Optimism Plummets

Finance chiefs are gloomy about the economy, but they don't expect a double-dip recession, according to the latest Duke/&splt;i>CFO&splt;/i> survey.
Kate O'SullivanSeptember 13, 2011

Optimism among chief financial officers took a nosedive in this quarter’s Duke University/CFO Magazine Global Business Outlook Survey, as economic uncertainty and weak demand continued to worry them. Finance chiefs who had grown more pessimistic compared with last quarter outnumbered those who had become more optimistic by five to one.

Still, despite their gloom, the 494 U.S. CFOs surveyed do not foresee a second recession. They continue to plan to increase their outlays in key spending areas, although by smaller amounts than they forecast last quarter. Capital spending, for example, will grow by 4.5% on average over the next 12 months, down from nearly 9% last quarter. Technology spending will rise by just over 4% on average, down from 6%, and marketing and advertising spending will grow by 2%, also down slightly. Research-and-development spending, however, will increase a bit more than predicted three months ago, by nearly 3%, up from 2%.

A Messy Jobs Picture
Finance executives also say they expect to continue hiring, although they plan to increase their full-time domestic workforces by a meager amount: just under 1% on average. The number is slightly up from last quarter, but isn’t large enough to make a dent in the unemployment rate.

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Seventy-one percent of CFOs say they have not pushed back existing hiring plans amid the market volatility of the past three months. But 29% have delayed their plans, citing economic uncertainty, insufficient demand, and financial and credit constraints.

Indeed, comments from finance executives about their companies’ different staffing situations reveal some of the varied and numerous factors depressing employment. For example, in some cases even healthy companies are making layoffs as they change strategic direction. Tom Curatolo, finance chief at Hometown America, an owner and operator of housing communities, says the company will be making some layoffs despite its strong performance as it sheds the weaker assets in its portfolio.  

In other cases, some who want to hire say they can’t. Attracting and retaining qualified employees ranks as one of CFOs’ top concerns about their companies. Fritz Prine, CFO at Westfield Steel, a steel distributor and processor, says his company is struggling to find qualified labor, despite its location in the economically distressed Midwest. Prine says he has 14 open positions that he has been trying to fill for eight months. “We can’t find machinists,” he says. “We are relying too much on the people who have been here for a while, and we are running them in 12-hour shifts and on the weekends and constantly trying to train people.”

Meanwhile, at TMP Worldwide, a communications firm focused on recruitment advertising programs, CFO Tom Fitzsimmons says the company is “doing fairly well” and hiring, but he can’t find enough of the digital and social-media experts he needs. “We have to mint these people,” he says. “We bring people in, train them up, and hope that we retain them.” Still, he notes, “as an economy, we are not generating enough activity to make that next hire an additional hire. We’re kind of moving sideways.”

Bogged Down
It is this “moving sideways” sentiment that has more than half of CFOs holding on to their cash. A third of CFOs say they will not deploy excess cash this year because they want to retain it should credit markets tighten. Twenty-nine percent say they are hoarding cash because of economic uncertainty, and 31% say they don’t have any excess cash to spend.

“We all know that everyone’s sitting on lots of cash, driven by the overall economic uncertainty,” says Kirk Hancock, finance chief at North Highland Co., a consulting firm. “Until that fog lifts, people will continue to sit on as much liquidity as they can.”