The Economy

Business Outlook Survey

Finance executives are encouraged, if not ecstatic, about the future of the economy.
Joseph McCaffertyApril 1, 2006

After several quarters of gloom, finance executives are starting to see some bright spots. According to the latest Duke University/CFO Business Outlook Survey, 42 percent of CFOs are becoming more optimistic about the direction of the U.S. economy, up from 32 percent last quarter. That marks the first big increase in optimism in more than two years.

The positive outlook stems from strong cash positions at many companies and forecasts for higher profits. CFOs predict that earnings will increase by 13 percent in the next 12 months, up 2 percent from last quarter. They also expect to boost capital spending by 6.5 percent. “This is a sign that we can expect the economy to pick up over the rest of the year,” says John Graham, a finance professor at Duke’s Fuqua School of Business.

CFOs are still worried about the cost of fuel and health care, although those concerns have subsided slightly. On a list of top business concerns, energy prices slipped to third after being number one for several quarters. By a large margin, CFOs now rate competition as the chief concern, an indication that businesses are looking to grow and expect to fight for market share.

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Overseas, finance chiefs are also predicting better days. In Europe, 46 percent of CFOs are more optimistic about their economy, up from 35 percent last quarter. The expectations of Asia’s CFOs are highest: 67 percent expect their domestic economies to improve.

The survey also finds that U.S. finance chiefs aren’t necessarily making plans to put the cash they have hoarded to work. Over the next 12 months, cash on the balance sheet will increase 2.6 percent, on average. Fifty-nine percent say they will hold on to much of it. Another 59 percent say they will use some of it to pay dividends or to buy back shares.

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