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.
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:
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.