CFOs See Slower Turnaround, Says Survey

Finance chiefs also envision more spending cuts--and some pretty skimpy bonuses--in 2002.
Stephen TaubDecember 18, 2001

On the whole, economists seem confident that the economy will begin to turn around by the second quarter of next year. The corporate officers who actually make budgets based on future revenues are slightly less sanguine, however. In fact, many CFOs expect the recession to continue into the second half of the year. What’s more, even with record-low interest rates, finance chiefs say it’s tough for businesses to borrow money right now.

These are some of the findings of the latest CFO Outlook Survey conducted by Financial Executives International (FEI) and Duke University’s Fuqua School of Business. FEI and Duke interviewed 291 CFOs electronically during the first week of December.

Only 6 percent of CFOs expect relief from the current recession to come in the next three months. 65 percent of the respondents expect the recession to end in either the second or third quarter of 2002.

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Despite these forecasts of modest economic growth, the CFOs in the survey do say that earnings at their companies will rise an average of 14 percent in 2002. That speaks volumes about the cost-cutting, payroll paring, and general blood-letting going on at most corporations these days. It also says something about the cost of capital.

Still, many CFOs in the survey claimed it’s hard lining up that cheap capital — this despite 11 rate cuts by the Federal Reserve bank and a record issuance of investment-grade corporate debt. While a third of the finance chiefs in the survey said they’ve tried to borrow additional funds this year, over half said they found credit to be tight. Only 12 percent said that low interest rates have led to easy credit terms. Of the surveyed CFOs, 31 percent reported that their companies have refinanced debt.

Things do look a little rosier on the job front, according to the survey. More than half of the respondents said the number of employees at their company will increase next year. 45 percent believe their companies will have fewer workers in 2002. Also, almost all of the finance chiefs — 93 percent, to be exact — predict wages and salaries will increase at their companies next year, with a net average 3 percent bump up in wages. “Any rise in employment numbers will be good news in this economy,” notes John Graham, finance professor at Fuqua and director of the survey. “We’ll be watching this employment forecast closely next quarter to see if there’s a trend in corporate hiring plans.”

One trend you’re likely to see next year: really small bonuses. 45 percent of the surveyed CFOs said their companies’ bonus payments will be “dramatically lower” compared with last year. Another 18 percent said payouts will be “slightly lower.” Only 4 percent expect a dramatic increase in bonuses.

Other results of the survey:

  • Companies plan to raise prices on their products 2.4 percent in 2002.
  • Capital spending will fall by 5 percent; with 47 percent of companies cutting their capital outlays from 2001.
  • Corporate technology spending will increase by an average of 1.4 percent. 58 percent of companies plan to increase their IT budgets in 2002, while 40 percent will reduce their outlays on technology.
  • Inventory will be down by 3 percent in 2002.
  • Productivity is expected to increase an average of 3.5 percent in the next 12 months, with 94 percent of companies expecting some positive growth in worker output.
  • What business factor most worries CFOs? Consumer spending, which ranked first as having the biggest impact on corporations in 2002. A variation on that theme — global economic concerns — came in second.

Remarkably, only 5 percent of the respondents cited concerns about fallout from September 11 — and just 4 percent mentioned the threat of future terrorism as a major worry. “In a special survey we conducted shortly following September 11, 57 percent of CFOs surveyed thought the terrorist attacks would have a direct negative impact on their company’s earnings,” Graham notes.