U.S. finance executives continue to be frustrated by government actions affecting their costs, leery of the ups and downs in equities markets, and nervous about economic conditions overseas — especially in China.This combination appears to finally be taking its toll on business confidence, according to the results of the Duke University/CFO Global Business Outlook survey for the third quarter of 2015.

The survey concluded September 4, and generated responses from more than 1,100 finance and corporate executives from companies of all sizes, including 510 executives from the U.S., 64 from Canada, 130 from Asia, 150 from Europe, and 260 from Latin America.

The outlook of U.S. finance executives for their economy continued to weaken this quarter, slipping to 60 following the previous quarter’s 63 rating (on a scale from 0 to 100) and the year’s high point of 65 in the spring. Confidence in respondents’ own companies has also wavered, although to a lesser degree. The 65.8 rating U.S. executives assigned to their level of optimism for their companies is the lowest seen in the survey since the beginning of 2014.

The lower confidence is starting to manifest itself in a few key measures. Capital spending is expected to increase only 2.4% at U.S. companies, the earnings growth outlook has fallen back to 3%, and employment levels are registering a nearly flat 1.4% growth.

In addition, even after the recent correction in the stock market, more than half of U.S. executives in the survey (55%) believe that the market is still overvalued. This view is most prevalent among the private companies not participating in the market, which make up the bulk of survey respondents.

Despite this quarter’s downturn, however, U.S. economic optimism remains higher than in any other region of the world. In Europe, optimism about domestic economies declined slightly this quarter, slipping from 60 down to 58. Still, other measures in Europe show signs of steadiness. European executives’ expectations top those of their U.S. counterparts in terms of capital spending (an anticipated 5.8% increase over the next year) and full-time employment (rising 4%).

For the first time in at least a decade, optimism is lower in all emerging regions than in either North America or Europe. Asian economic optimism (excluding Japan) fell to 56, down from 63 in the previous quarter’s survey. Capital spending will be flat in Asia, while full-time employment will decline at the same time that a 6% hike in wages is foreseen. Perhaps as a competitive response to these conditions, Asia will be the most active region for mergers and acquisitions (M&A), with firms attempting to diversify product lines, expand geographies, and improve position within their industries.

Latin American economic optimism plummeted to 43 on a 100-point scale, dragged down by the continuing gloomy outlook in Brazil and a newly pessimistic Chile. Full-time employment in the region is expected to contract by 1%, and median capital spending will not change. Mexico remains a bright spot in Latin America, with the highest level of optimism (58 on a 100-point scale). Mexican firms expect to increase employment by 2.7%, but capital spending only by a modest 1.2%. Employment remains a concern in Mexico, with just under three-quarters of respondents saying their companies have difficulty filling key positions.

Paying to Play

In the United States, M&A activity will continue at roughly historical levels, with the deals funded largely by cash and debt in nearly equal amounts. Interest in acquisitions is the highest by far among the largest companies in the survey; about 60% of the companies larger than $5 billion in revenues are planning to acquire part or all of another company within the next year. These companies are motivated primarily by the drive to find new opportunities for cost synergies, presumably having already wrung as much productivity as possible from their existing organizations. From an industry viewpoint, interest in acquisitions is particularly high in the energy, technology, and manufacturing sectors.

The smallest of the U.S. companies in the survey — those with less than $25 million in revenues — do not feel inclined to spend their hard-earned capital on other companies, preferring to continue to invest in their own. Only 10% of these companies expect to make any acquisition within the next year.

At the next level up — U.S. companies with revenues between $25 million and $100 million — acquisition interest is higher but still modest, with about 30% of the companies planning on an acquisition. If one of these smaller businesses does acquire another, it is more likely to be in order to jumpstart revenue growth or improve their competitive position than it is to gain economies of scale.

Interestingly, finance executives do not appear to be turning to acquisitions to help them solve their hiring woes. U.S. executives typically place attracting and retaining qualified employees among their top business concerns, and this quarter is no exception.

In fact, this time practically all of the respondents (93%) say that their companies still have job openings in key positions, and nearly half of these firms also say they are having difficulty filling these slots. U.S. firms expect to hike wages 3.3% over the next year, with wage growth strongest in services, consulting and construction.

Overall, the unemployment rate is expected to remain relatively unchanged over the next year, but employment is expected to actually shrink in the finance, energy, and agriculture industries.

Will a Dark Horse Save U.S. Business?

Despite the fact that economic uncertainty is the top business concern across much of the globe, as well as in the United States, U.S. executives are worried that the hard lessons learned during the most recent recession may be fading from corporate memories. Somewhat less than half (44%) of U.S. executives believe firms in their own industries have become complacent about the threat of, and potential negative effects of, future economic stress (for example, a recession or crisis). The fact that an even higher proportion of respondents from the banking industry (55%) believe their industry has become complacent is noteworthy, given the attention that the media and regulators gave this sector in the aftermath of recession.

These types of fears may be contributing to, if not directly causing, respondents’ preference for presidential candidates who are most familiar with business issues. The current Republican front-runner, Donald Trump, leads the list of presidential candidates respondents rated as best for business, garnering 19% of the vote. Trump is followed by another hopeful emerging from the business sector, Carly Fiorina (14%). However, Jeb Bush trails Fiorina by only a couple of tenths of a percentage point.

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