The Economy

New Outlook for the New Year?

CFOs are more optimistic than last quarter and plan to do some hiring in the year ahead, according to the latest Duke/&splt;i>CFO&splt;/i> Global B...
Kate O'SullivanDecember 15, 2011

CFOs are slightly more optimistic than they were three months ago, despite the ongoing European debt crisis and continued uncertain demand at home. According to the latest Duke University/CFO Magazine Global Business Outlook Survey, finance executives rate their optimism about the U.S. economy at 53 out of 100, up from 47 last quarter but still below the survey’s long-term average of 60. Finance chiefs plan to increase hiring in the year ahead but are still cautious, putting the chance of a new recession at 30%.

These mixed signals reflect the very varied results at individual businesses. On one hand, for example, Mark Muskevitsch, finance chief at heavy-duty truck dealer JX Enterprises, says, “Our little corner of the economy is doing very well,” thanks in part to customers’ increasing need for parts and service as they keep old vehicles on the road. On the other hand, Milton Bulloch, CFO at Alpha Steel, a steel-fabrication company that has seen its business cut in half over the past few years, reports that “the economy for the year ahead is brutal,” citing a lack of demand for the company’s products, mainly used in building schools, strip malls, and multistory office buildings. Alpha’s business has shifted to focus on federal government contracting in recent years, with good results, says Bulloch. “That’s what’s kept us going.”

Rob Ogilbee, CFO at Wish Farms in Florida, says his business is relatively insulated from the economy, as demand for the company’s strawberries and other produce typically outstrips supply. As for the broader economy, “I think we’re basically going to have a repeat of 2011,” he says. “It’s a perception issue. We may see growth in some sectors, but the typical American sees a bad economy, and that’s what they’re reacting to.”

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Hopes for Hiring
On average, CFOs do plan to boost spending in key categories such as capital spending, which they say they will increase by 8% over the next 12 months. Technology spending will grow by 6%, while research and development spending will increase by nearly 3% and marketing and advertising spending will grow by about 2%.

On the critical jobs front, finance executives have a somewhat improved outlook compared with last quarter, now saying they plan to increase their full-time domestic workforces by 1.5% on average over the next year. Such an increase would yield enough new jobs to reduce the unemployment rate from its current 8.6% to near 8% by the end of 2012.

JX Enterprises, which is based in Wisconsin, is struggling to fill some 55 open positions, says Muskevitsch. “We would hire service technicians all day long if we could, at probably every one of our locations,” he says. The company is finding it hard to find workers with the appropriate skills, and those with the right training are in demand at a range of different kinds of companies. “It’s just a high demand, low supply type of field,” says Muskevitsch. “Recruiting is a big challenge.”

His fellow finance executives cite consumer demand, federal government policies, and price pressure from competitors as top concerns. The ability to maintain margins, the cost of health care, and the ability to forecast results lead the list of internal, company-specific concerns.

Global Outlook
CFOs are also worried about global financial instability. Nearly a quarter say their businesses would experience a significant effect should multiple European banks become insolvent, and an additional 59% say they would feel a minor effect.

European finance chiefs, not surprisingly, are markedly less optimistic this quarter than last, with 66% saying their level of optimism has fallen. Ninety percent say the debt crisis has negatively affected their businesses, with 45% calling the impact “significant.” Europe’s finance chiefs put the probability of their countries entering a recession in the next six months at nearly 50%.

In Asia, CFOs are less optimistic than they were last quarter, but they remain more positive about their regional economy than their U.S. and European peers. In a dramatic contrast with their counterparts, Asian finance chiefs plan to expand their workforces by 5% on average in the next year, and they expect wages to rise by 7%.