The Economy

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While caution predominates, CFOs are starting to have a good feeling about the year ahead.
Kate O'SullivanFebruary 1, 2011

Finance chiefs are welcoming 2011 with plans to loosen their purse strings and hire new workers, while also expressing more optimism than they have in many months.

Nearly 50% of CFOs are more optimistic about the U.S. economy than they were last quarter, while just 14% are less optimistic, according to the latest Duke University/CFO Magazine Global Business Outlook Survey. September’s survey showed a dramatic decline in optimism, perhaps indicating disappointment that the economy failed to stage a robust recovery during 2010, but finance executives now appear to be looking ahead with at least a modest degree of enthusiasm.

“Nobody’s very confident about what they’re seeing, but the fog is starting to lift a bit,” says Glenn Weber, finance director at Deufol, a German plastic packaging company with its U.S. headquarters in Cincinnati. “People are still somewhat cautious, but it’s much better compared with a year ago.” Deufol, which closed a plant and made layoffs as it struggled through the recession, expects to grow this year, in part due to its entry into the gift-card packaging market.

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“We feel that we have hit the bottom of the economic cycle,” says Mona Leung, CFO at Alliant Credit Union in Chicago. “The fear of a double-dip recession, fear of a depression scenario, is very slight. So the outlook is positive, and we do anticipate a slow recovery in the next two to three years.”

While Leung’s tone is guarded, she says Alliant is hiring and plans to develop new revenue streams in the coming year. Her fellow finance executives also expect to add staff: on average, CFOs project a 2% increase in full-time domestic employment over the next 12 months, the largest rise since 2006.

That increase would represent 3 million jobs, and should bring U.S. unemployment below 9% by the end of the year, according to John Graham, finance professor at Duke’s Fuqua School of Business and director of the survey. CFOs in the service and technology sectors predict the most substantive workforce expansions, with anticipated increases of 10% and 9%, respectively.

Finance chiefs will put money to work in other critical areas as well. Survey respondents say they plan to spend nearly 9% more on capital expenditures in the next 12 months and nearly 5% more on technology, both increases from third-quarter expectations. In addition, CFOs plan to boost research-and-development spending by 4% versus last year, and marketing and advertising spending by 2%.

The credit markets have improved for many companies, with 36% saying they find borrowing easier than it was in fall 2009, while a fifth find it more difficult and more than 40% say conditions are unchanged.

Among companies with 100 or fewer employees, however, credit constraints remain. A third say credit conditions have worsened since fall 2009, while only a fifth say they have improved.

Global Differences

Juan Figuereo, finance chief at Newell Rubbermaid, says the company’s U.S. business has continued to be “anemic,” with consumers reluctant to buy and retailers hesitant to add inventory. Overseas, however, the global manufacturer of consumer and commercial products like Rubbermaid storage bins, Sharpie pens, and Graco strollers sees a much better rate of growth. “We are encouraged by what we see outside the U.S.,” says Figuereo. “In some cases, growth is accelerating, but in most cases it is at least maintaining what we have seen in the past three months.”

Indeed, finance chiefs in Asia are much more optimistic than their U.S. counterparts, in part due to the strong recovery in emerging markets there. Seventy-two percent of Asia’s CFOs say they are more optimistic than they were last quarter, while only 10% are more pessimistic. Finance executives in Asia plan to increase full-time head count by 5% over the next 12 months.

In Europe, however, anxiety about the debt woes of multiple eurozone countries and a slow recovery continue to depress the mood. Europe’s CFOs are the least optimistic of those surveyed, with 38% more optimistic than they were last quarter and 27% more pessimistic. Nearly two-thirds of Europe’s finance executives say that Ireland, which is in the midst of a debt crisis, poses a threat to the euro, but a majority also say the nation is in a better position than Greece was last year. Not surprisingly, finance chiefs in Europe are less likely to be hiring than their peers elsewhere in the world, forecasting less than a 1% increase in their full-time workforces on average.

Even in the United States, the improved outlook is tempered by a number of concerns. Finance chiefs continue to worry about consumer demand and their ability to maintain margins. Figuereo says commodity prices are a top concern at Newell Rubbermaid, as the very growth in emerging markets that is buoying the company’s international sales is also driving up prices on key inputs to its manufactured goods.

Still, says Figuereo, “We believe the economy is improving. It is probably going to continue to be a very sluggish and slow recovery, but a recovery nonetheless.”

Kate O’Sullivan is a deputy editor at CFO.

Business Outlook Survey Results, Jan/Feb 2011