The Economy

Survey: CFOs Gloomy about Economy

Rising labor costs and weak consumer demand have CFOs feeling pessimistic about the U.S. economy, according to the latest Business Outlook Survey b...
Alan RappeportJune 7, 2007

CFOs are feeling gloomier about the U.S. economy this quarter, their optimism sagging on concerns about rising labor costs and weak consumer demand, according to the latest Duke University/CFO Business Outlook Survey. For the first time this year, a majority of CFOs are feeling pessimistic about the future direction of the U.S. economy.

The dour sentiments are based on expectations for slow earnings growth, capital spending, and hiring. “The optimism index has sunk below the water again, to a level that is low by historical standards,” says John Graham, a finance professor at Duke’s Fuqua School of Business.

Optimism reached its lowest point since the last recession in October 2006, but then rebounded. In the latest survey, executives said they expected merger activity to remain strong during the year ahead, but to eventually sag as aggressive private equity firms bid up the price of acquisitions. According to the survey, 85 percent of corporations expect strong M&A activity to continue through 2008, with consulting, healthcare and technology industries particularly hot.

4 Powerful Communication Strategies for Your Next Board Meeting

4 Powerful Communication Strategies for Your Next Board Meeting

This whitepaper outlines four powerful strategies to amplify board meeting conversations during a time of economic volatility. 

Downcast finance chiefs are planning to scale back capital-spending and hiring forecasts. Capital spending is expected to rise by 5.2 percent in the next 12 months, down from the 6.7 in the last quarter. On a brighter note, returns on corporate investment are expected to deliver a “healthy” 13.2 percent. Yet companies are anticipating little employment growth in the coming 12 months, as outsourced employment is predicted to rise by 7 percent.

“The CFOs see a toxic cocktail that includes slashed advertising spending, a sharp slowdown in tech spending and the most lethargic growth in employment in four years,” says Professor Campbell Harvey, also of Duke.

The mood abroad is less toxic than in the U.S. In Europe 41 percent of finance executives are more optimistic about their economies, down from 48 percent in the last quarter. And in Asia two-thirds of CFOs are more optimistic than in the previous quarter.