Economy Still Stuck, CFOs Say

In latest Duke/&splt;i>CFO&splt;/i> Global Business Outlook Survey, finance chiefs say QE3 will not be the answer to their economic woes.
Kate O'SullivanSeptember 11, 2012

Although finance chiefs are becoming more pessimistic about the U.S. economy, quantitative easing is not going to perk them up, according to the latest Duke University/CFO magazine Global Business Outlook Survey, now in its 66th consecutive quarter. In the global survey of more than 1,400 finance executives, U.S. CFOs rated their optimism levels at 52 out of 100, down from 56 last quarter. Their European peers are also less optimistic than they were three months ago, while optimism in Asia has improved slightly.

When asked whether a 1% decrease in interest rates would spur them to initiate or expand investment, 91% of responding CFOs said they would not be likely to change their investment plans, even with such a dramatic — and unlikely — rate move.

Eighty-four percent of CFOs would not initiate or expand investment plans even with a 2% rate decrease, indicating that whatever the Federal Reserve announces following its meetings this week, further quantitative easing does not appear to be a solution to the corporate sector’s sluggish spending and the overall tepid recovery. “I think the Fed has pretty much pulled all the levers that it can,” says Greg Bubp, CFO at Eclipse, a manufacturer of industrial heating products based in Rockford, Illinois.

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Global economic uncertainty is weighing heavily on CFOs as they construct their budgets and forecasts for the coming year. Thirty percent said slowing growth in Asia is having a negative impact on their business, while 50% said they are feeling a negative impact from the ongoing European debt crisis.

For Ed Cordell, CFO, Americas, at Given Imaging, a medical-device maker, the uncertainty still swirling around health-care reform is a major concern, although at the moment the company is doing well. “We’re hitting our growth targets and it’s hard slugging. But we’re making it,” he says. With some 40% of the company’s sales outside the United States, however, slowing growth in Asia and potential budget cutbacks in Europe pose big questions, too.

Finance executives also cited consumer demand, federal government policies, and price pressure as major concerns, along with the cost of health care and their ability to attract and retain qualified employees.

Slowing Spending
U.S. finance executives said their companies will continue to spend, however, in the coming 12 months, if at lower levels than they reported last quarter. CFOs said their companies will increase capital spending by nearly 4% on average in the next year, down from nearly 5% last quarter and 7% six months ago. Finance chiefs expect to boost tech spending by 4%, down from 8% last quarter, and will increase both R&D spending and advertising and marketing spending by 3% on average, both down from last quarter’s numbers.

CFOs also plan to expand their workforces in the coming year by slightly less than they reported last quarter. Finance chiefs said their companies will increase their full-time staffs by 1.5% on average, while expanding temp staff by less than 1% and offshore staff by 3%. Wages continue to grow slowly, with CFOs saying they will rise by 3% in the next 12 months.

What will it take for CFOs to commit to greater hiring and capital spending numbers? “I would say Europe getting its act together as well as Congress doing something to set a direction in terms of fiscal policy,” says Bubp.

Given Imaging’s Cordell says the November election should clear up some of the questions dogging its hospital and physician customers and putting a damper on sales. What else would help? “Time,” he says.