Business Outlook Survey

CFOs are retrenching as the United States enters what could be a lengthy recession.
Kate O'SullivanApril 1, 2008

After months of steady decline, the economic outlook can
now only be described as bleak. Speaking
at CFO’s annual CFO Rising conference last
month, veteran finance chief Jerry York
said, “It’s going to be a very bad recession,
perhaps the worst I’ve seen in the 46 years
I’ve been working.” A majority of finance
chiefs are similarly gloomy.

Optimism among finance executives
reached a new low in this quarter’s Duke
University/CFO magazine Global Business
Outlook Survey, with 72 percent of CFOs
more pessimistic about the economy than
they were last quarter and only 8 percent
more optimistic. Pessimists outnumber
optimists nine to one. CFOs also expressed
less optimism about their own companies than ever

More than half of finance executives say the United
States is now in a recession, and another quarter say the
country will be in recession by the end of the year. Nearly
90 percent say the economy will not return to normal
growth conditions until late 2009. Should a recession
last until the second half of next year, it would be the
longest such downturn since the late 1970s — dramatically
longer than the dips in the early 1990s and in 2001,
each of which lasted just eight months.

CFO Insights on Inflation, Workforce Challenges, and Future Plans 

CFO Insights on Inflation, Workforce Challenges, and Future Plans 

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As a result of this economic uncertainty, 60 percent
of CFOs have postponed expansion plans. They say capital
spending will grow by just 3 percent this year, which
economists consider maintenance-level. Hiring will
increase by less than 1 percent. Even technology spending,
which had remained fairly healthy as other purchasing
slowed in recent quarters, will grow only modestly.

Credit conditions have directly hurt 35 percent of
companies, and finance executives are worried about the
impact of the credit crunch throughout the supply chain,
fearing that business and consumer customers as well as
suppliers could face difficulties. Thus far, the Federal
Reserve Board’s actions to cut interest rates have failed
to help most companies.

“It’s not good when good businesses can’t get credit,”
says Jim Frates, CFO and treasurer at biotech firm
Alkermes, based in Cambridge, Massachusetts. “I think
every company is keeping a careful eye on
its cash balance.” In biotech, says Frates,
this means some smaller firms won’t be
able to pursue as many new projects as
they would like. “Companies are going to
be conserving resources,” he says. “Even
exciting projects could be pushed out 24
to 36 months.”

Concern about inflation is further
dampening the mood of CFOs this spring.
Faced with rising costs for commodities
ranging from oil to wheat, finance executives
say they plan to raise prices by 3 percent
over the course of the next year,
above the Fed’s target of 2 percent.

“I feel worse than I did three months
ago because of inflation concerns,” says
Bruce McDonald, CFO at Johnson Controls,
the $36 billion diversified manufacturer
and services provider based in Milwaukee.
“I see a real ramp-up in commodity
inflation, and Corporate America
is just going to have to pass that cost
on to the customer.” McDonald notes
that commodity price increases have
come in waves over the past few years,
with steel, copper, and chemicals all

There were two relatively bright spots
in this quarter’s results, however. First,
for some companies, the weak dollar has
buffered the impact of diminishing U.S.
demand, as the falling greenback has
buoyed exports. Eighty-six percent of
companies with foreign sales say the
declining dollar has helped them by
accelerating their business overseas.

Second, CFOs expect to continue to
pursue mergers and acquisitions. Thirty-seven
percent say they plan to buy a company
or part of a company in the coming
year. For businesses with healthy balance
sheets, the weak market should provide
plenty of buying opportunities.

In Europe, finance executives are nearly
as dour as their U.S. counterparts, with
60 percent more pessimistic about their
countries’ economies than they were last
quarter. CFOs in Asia also became dramatically
more pessimistic about their
region this quarter. Seventy percent of
them say the United States is currently in
a recession, and half expect a significant
negative impact on their earnings as a
result. Nonetheless, Asia’s finance executives
continue to be more optimistic than
their U.S. and European peers.

Kate O’Sullivan is a senior writer at CFO.

The Way Forward

At the CFO Rising conference in Orlando last month, we asked
CFOs what the next U.S. President could do to spur
economic growth. Here are some of their suggestions:

  • “Invest in infrastructure.”
  • “Control government spending.”
  • “Address currency deflation.”
  • “Fix the health-care mess — it’s a huge cost to


  • “Encourage alternative energy through incentives.”
  • “Balance the federal budget.”
  • “Provide incentives to bring manufacturing back to the U.S.”
  • “Pull out of Iraq! Wars are expensive!”
  • “Invest in education.”
  • “Cut corporate and personal taxes.”
  • “Develop a long-term energy-independence plan.”
  • “Increase R&D tax credits.”
  • “Abolish the Federal Reserve.”
  • “Stay out of the way!”

Economic optimism; expected U.S. company growth; U.S. recession; return of normal economic growth

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