Survey finds CFOs hopeful—at least in U.S., Asia

DUKE (US)—Chief financial officers in the United States and Asia see a dim light at the end of a very long economic tunnel, according to a survey from Duke University and CFO Magazine. European CFOs, however; don’t agree.

The optimism comes despite short-term difficulties, including a continuation of the worldwide recession through 2009, with substantial cuts in both employment and capital spending.

Among the survey findings:

  • U.S. CFOs expect the recession to last through 2009.
  • CFO optimism is rising from its recent all-time lows, with 54 percent of U.S. and 63 percent of Asian CFOs more optimistic than they were last quarter. Only 30 percent of European CFOs are more optimistic and 31 percent are less optimistic.
  • Liquidity at lower-rated firms continues to worsen as they struggle to find credit. When they are able to secure credit, the cost is high. Credit market conditions have stabilized at companies with strong credit ratings.

Campbell Harvey, founding director of the survey and international business professor at Duke’s Fuqua School of Business, warns that the public should not get overly optimistic about the optimism.

“Our survey carries an important message: Don’t put too much weight on the ‘soft’ data like consumer confidence,” he says. “Recovery requires sustained confidence, and such confidence is forged by stronger economic fundamentals—employment, capital spending, the cost of credit—(which) are still fundamentally troubling.”

One example of underlying weakness is the surveyed companies’ employment plans. Employment in the U.S. is projected to decrease by about 5.5 percent over the next 12 months, which could drive the overall unemployment rate into the 11-12 percent range.

“Presumably, government programs will offset some of these losses, but even the most optimistic government forecasts would reduce the losses by only 2 million. We’re facing the possibility of another 4 million lost jobs,” says Harvey.
Concerns about weak consumer demand and credit markets, along with federal government policies, an inability to plan due to economic uncertainty and maintaining employee morale remain at the top of concerns for CFOs in the United States, the study reveals.

“The rest of 2009 will remain challenging, but 2010 looks better for the U.S. and Asia,” says Kate O’Sullivan, senior writer at CFO Magazine. “The weak European outlook could dampen the recovery in the rest of the world. To put it in context, the U.S. rating of 52 is still well below the long-term average of 61, but it is heading in the right direction. Given the strong record of the CFO optimism index as a leading indicator, we can expect the U.S. economy to begin to recover by early 2010. But the CFO outlook for the rest of 2009 is fairly dismal.”

About six in 10 U.S. companies report they are credit-constrained, meaning they have had difficulty locating credit and/or the cost of available credit is much higher than before the crisis. during 2009, while only 23 percent say conditions have improved.

“There is a dramatic split between haves and have-nots in the credit market,” says John Graham, a finance professor at the Fuqua School and survey director. “Companies that have remained profitable and retained high credit ratings are generally able to obtain new credit. In contrast, the companies that really need credit, because they are experiencing losses or have seen their cash reserves shrink, find worsening credit conditions.

“The big concern is we might hear the other shoe dropping, with the liquidity crisis that is strangling these companies creating substantial risk for the world economy.”

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