The Economy

And a Happy New Year?

In our quarterly Global Confidence Survey, 71 percent of U.S. respondents say they are either ''confident'' or ''very optimistic'' about the domest...
Joseph McCaffertyDecember 1, 2003

CFOs feel a groove coming on. They finally see enough signs of economic recovery to be confident that the new year will be brighter. Positive employment numbers released in November and CFOs’ own intentions to increase hiring contributed to expectations for improvement in 2004. In fact, finance chiefs are more hopeful about the prospects for the U.S. economy over the next year than they have been since the quarterly CFO Global Confidence Survey was first conducted in June 2000.

According to the current survey, 71 percent of U.S. finance executives say they are either “confident” or “very optimistic” about the domestic economy over the next year. That’s up from 58 percent holding positive views last quarter.

CFOs base this optimism on their hopes for better profits and revenues in their own companies. A solid 69 percent expect to improve profitability next year, while 79 percent think sales will increase. About 42 percent say they expect capital spending to increase in the next quarter, and more than half of those say they will increase spending by more than 5 percent. Only 8 percent expect to decrease capital spending next quarter.

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Perhaps even more telling is that, for the first time since 2001, respondents did not list weakness in the local and global economies as one of their top three concerns. In this reporting period, increased competition was named the chief concern, followed by the cost of benefits and the need to attract and retain employees.

That third concern suggests the end of what has been, so far, a jobless recovery. In fact, 45 percent of CFOs say they will increase hiring over the next six months (up from 37 percent last quarter), and another 46 percent expect to keep the ranks of employees at the same level. That sentiment is supported by unemployment data released in November that showed a better-than-expected jump in new jobs—the third consecutive monthly increase.

Still, their cheerfulness is laced with a hint of skepticism. Less than half (46 percent) think a broad recovery is already under way. Another 24 percent expect it to begin in the first half of 2004, and 23 percent say it could be the second half of 2004 or later.

And respondents have some lingering hesitation about declaring the global economy healthy, too. Many U.S. CFOs (50 percent) still define their outlook toward the global economy as “neutral,” and only 40 percent say they are confident about its prospects. Their counterparts overseas weren’t much more enthusiastic: 44 percent of European CFOs hold positive outlooks on the global economy, and 49 percent of Asian CFOs agree. But Asia’s finance chiefs are much more bullish about their region—84 percent say they are optimistic about their economy. In Europe, CFOs are still not ready to join the party; only 35 percent are confident about their economic prospects.

With the potential for a hiring wave to hit here, finance chiefs expect to spend more on compensation. More than 66 percent say they will boost salaries, and 39 percent say they will increase bonuses. In fact, spending will increase in most areas, with insurance (65 percent), benefits (63 percent), and travel (46 percent) leading the way.

The generally rosy outlook comes with a caveat: U.S. CFOs are still troubled by the federal deficit, which could push interest rates up. Nearly a third of respondents say they are “very concerned” about the potential economic impact of a rising federal deficit, and another 56 percent are “concerned.”

CFOs who are confident or optimistic about their regional economy over the next year.1


…about the global economy over the next year.1

During the next quarter2:

The U.S. economy will begin a broad recovery 2:

1Based on responses from 213 CFOs in the United States, Europe, and Asia
2U.S. respondents only (82)