The Economy

Business Outlook Survey

CFOs are gearing up for growth, slowly.
Joseph McCaffertyApril 1, 2007

It’s springtime and finance executives are ready to sow a few seeds. With renewed confidence in the economy, companies report that they are investing in their businesses — ramping up hiring plans and increasing projections for capital spending.

According to the most recent Duke University/CFO Business Outlook Survey, 35 percent of finance chiefs say they are more optimistic about the direction of the U.S. economy, up from 30 percent last quarter. For the first time in more than a year, more CFOs are positive, rather than negative, about economic prospects.

But that enthusiasm is muted. More than a quarter of respondents think the economy is headed in the wrong direction, and earnings growth over the next year is expected to slow by almost 2 percent, according to the survey.

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Increased spending isn’t expected to pay off right away, leading to lower profit projections — from 9.3 percent to 7.4 percent. More than half (57 percent) say they intend to increase their domestic employee base by an average of 1.6 percent in 2007. Nearly two-thirds will spend more on capital projects, with an average increase of 6.7 percent (up from 4.9 percent last quarter). CFOs are also concerned that the increased hiring will not come cheap. For the first time in years, labor costs topped the list of biggest concerns, followed by health-care costs, consumer demand, and a shortage of skilled labor.

U.S. finance executives weren’t nearly as upbeat as their counterparts in Asia, where 72 percent hold a positive view of the economy, or Europe, where 48 percent do. Nor are CFOs as sanguine as their bosses: half say that CEOs have a rosier outlook on the company. Their reasons suggest just why finance chiefs offer a necessary counterweight: 36 percent say CEOs are more optimistic about everything in life, and 31 percent say CEOs are expected to lead the cheers for their companies even if the facts suggest more reason to boo.