The Economy

Wage Pressures, Competition, Cyber-Security Temper U.S. Outlook

Results from the 2nd-quarter Duke University/CFO Magazine Global Business Outlook survey
David W. OwensJune 10, 2015

In the latest Duke University/CFO Magazine Global Business Outlook survey, finance executives expect wage hikes of more than 3 percent over the next year at U.S. companies, with full-time employment increasing by more than 2 percent. Wage and employment growth is predicted to be strongest in the technology, services and consulting, health care, and construction sectors, but weaker at financial services firms and businesses in the energy sector.

This is the 77th consecutive quarter the Duke University/CFO Global Business Outlook survey has been conducted. This year’s second-quarter survey is based on responses from more than 1,000 finance and corporate leaders, including 508 from the U.S. and Canada, 136 from Asia, 135 from Europe, 293 from Latin America, and 35 from Africa. Full results for the current and historical quarters are available at

Wage growth expectations the past few quarters have been the highest seen in the survey for many years. This quarter, seven in ten respondents expect salaries to rise by at least 2.5 percent over the next 12 months, and a quarter anticipate rises of more than 4.5 percent. At that pace, wage growth would outpace respondents’ expectations for the inflation rate, which has remained stuck at around 1 percent in the two most recent quarterly surveys.

A Better Way to Do Ecommerce

A Better Way to Do Ecommerce

Learn how Precision Medical leveraged OneWorld to cut the cost of billing in half and added $2.5M in annual revenue.

Salary projections may be reflecting a prolonged tightening in labor markets, especially for specialized skills. In fact, U.S. respondents indicate that difficulty in hiring and retaining qualified employees is one of their top three concerns this quarter, and this concern is particularly high in industries such as technology and health care that rely more on skilled labor.

Employment is also expected to shrink over the next year in the finance and energy industries. Financial services firms cite the need to continue to adapt to new regulations and restrictions as a drag on their businesses. Companies in the energy sector, of course, are more likely than others to say they are taking a direct hit from the continued depression of oil prices. As one executive from the energy sector writes, the newest challenge will be “managing through the energy industry downturn [and] holding on to critical talent.”

Salary pressures are more likely to come from the increasing intensity of competition than from other factors. Approximately eight out of ten respondents say that their hiring plans will not be affected by macroeconomic factors such as interest rates, oil prices, or even the overheated U.S. dollar. But, when asked what new challenges have cropped up since the first-quarter survey, a number of respondents point to a heightened level of competition. For example, an executive from one of the smaller companies writes, “Demand being low, large companies that were never competition [before] have entered our market for cash flow.”

Others cite concerns about global deflation or a global economic slowdown. These concerns leave some companies feeling especially exposed to foreign competition.


Strong Dollar Continues to Hurt U.S. Exporters

Nearly half of the respondents say that the strong dollar has affected their business, split evenly between direct and indirect impacts. Two-thirds (65 percent) of those whom the dollar value has affected say that the effect has been negative for their businesses.

The strong U.S. dollar has significantly hurt exporters, with more than 80 percent of firms with at least one-fourth of their total sales overseas noting a negative impact. About 40 percent of these large exporters say they have reduced capital spending plans as a consequence.


Economic Outlooks Around the Globe

U.S. executives remain relatively positive about the U.S. economy. On a scale from 0 to 100, they rate the economic outlook at 63, down from 65 last quarter but still the third-highest score posted since 2007. U.S. companies plan to increase capital spending by an average of 6 percent over the next year.

Respondents from Asia also rate their economies at 63 on a scale from 0 to 100. However, this represents a more dramatic reduction from the outlooks being registered two or three years ago. Perhaps in an effort to counteract the effects of slower economic growth, respondents from Asia (outside of Japan) expect to boost spending on advertising and marketing by 7.6 percent over the next 12 months. Wages are expected to rise by only by 2 percent in Japan but by more than 6 percent averaged over the rest of Asia. Wage inflation is the top business concern in China.

In contrast, European optimism is on the rebound, at 60, rising to the second-highest level since 2007. Capital spending growth will be modest, at less than 2 percent, but employment is expected to increase more than 2 percent for the first time since 2011. European respondents also expect wages to rise by about 2 percent.

Latin American economic optimism remains low (53) overall but varies quite a bit by country. Brazil is the most pessimistic large economy in the world, with optimism of 36 on the index and no growth for the median firm in either capital spending or hiring. Chile, Peru, and Ecuador register modest economic outlooks in the low 50s. Mexican respondents are much more optimistic (63), and they plan to increase capital spending and employment by more than 8 percent each this year.

Wage increases are expected to average about 4 percent across the region. Top concerns in Latin America include economic uncertainty, currency risk, governmental policies and regulations, and weak demand. Brazilian respondents are also very worried about inflation.


Hacking Risks Flying Under Corporate Radars

In one of the most surprising results from this quarter’s survey, more than 80 percent of U.S. companies indicate their systems have been successfully hacked in an attempt to steal, change, or make public important data. The hacks have been much more successful at smaller firms: 85 percent of firms with fewer than 1,000 employees indicate their systems have been successfully penetrated, compared to about 60 percent of larger companies. More than 85 percent of respondents from firms in Asia, Europe, Africa, and Latin America say they also have been hacked.

“Corporate America is an easy mark for hackers, as we are repeatedly reminded in the news,” says John Graham, a finance professor at Duke’s Fuqua School of Business and director of the survey. “However, it is not just big firms like Target that are being hit – 85 percent of smaller firms are also under siege. No one appears safe. The situation may even be worse than reported because many firms might not even realize that they have been attacked.”

The success rate of hacking into small and medium-sized firms is a direct result of fewer resources being dedicated to data security at these firms, Graham says. Survey results show small firms are only about half as likely as large firms to attempt a “friendly hack” into their own systems, to hire new data security staff, or to require data security training for employees. With firms searching for whatever edge they can gain against intensifying competition, they may well consider taking a more proactive stance on cyber-security risks and the potential impacts on customer confidence.