The Economy

Business Outlook Survey

U.S. CFOs see trouble ahead.
Joseph McCaffertyOctober 1, 2006

Optimism among CFOs has hit its lowest point since the last recession, according to the latest Duke University/CFO Business Outlook Survey. Just 20 percent of finance chiefs are more optimistic about the direction of the U.S. economy, down from last quarter, when 24 percent had a positive outlook. Almost half of those surveyed say they are more pessimistic about the future direction of the U.S. economy.

The gloomy picture stems from continued worries about consumer demand, the rising cost of labor, and high fuel prices, according to the survey. “CFOs are feeling so negatively about the U.S. economy that one-third say it’s likely we will be in recession within a year,” says John Graham, a finance professor at Duke’s Fuqua School of Business.

“I’m just a little nervous,” confirms Clay Hale, vice president of finance at Siemens Energy and Automation. “You can envision a perfect storm where the housing market collapses, oil prices rise, and people start panicking.” In fact, lower consumer demand topped the list of CFOs’ biggest worries, followed closely by the high costs of labor, fuel, and interest rates.

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Based on this less-than-rosy view, some finance chiefs are planning to scale back capital-spending and hiring forecasts. The survey measured the first decline in capital-expenditure projections in a year. CFOs say they will increase capital spending over the next 12 months by 5.1 percent, down from 7.5 percent last quarter. Domestic hiring is expected to rise by just 0.8 percent, down from anticipated growth of 1.3 percent last quarter.

Overseas, the mood isn’t as bleak. Finance executives in Europe are actually more optimistic (43 percent) about their economy than they were last quarter (40 percent). And in Asia, optimism jumped from 54 percent last quarter to 64 percent.