CFOs began the year with improved optimism toward the global and U.S. economies and their businesses, according to a new survey, but most still believe a recovery is over a year away.
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The quarterly CFO Outlook survey, conducted by Financial Executives International and Baruch College’s Zicklin School of Business, polled more than 200 CFOs of public and private businesses about their level of confidence, as well as their expectations for the economy and their own companies.
The survey found that CFOs in both the U.S. and Europe are more optimistic, after feeling dismal about the economy for the last few quarters. While they are still concerned about how to increase revenue and control expenses, their capital spending has stabilized and they indicated they are not planning to make drastic cuts to their workforce.
The optimism index for U.S. CFOs toward their own businesses increased to 69.50 (from 62.7 in the third quarter of last year), while European CFOs’ confidence in their own businesses saw a slight increase (57.50 from 55.70 in the third quarter). Optimism in the global economy rose 8 points among U.S. CFOs to 52.2, from a near low for the survey in November 2012 of 44.2.
European CFOs’ confidence in the global economy also rose to 51.30 (from 45.2 in Q3). The optimism of U.S. CFOs in the U.S. economy this quarter increased 5 points to 56.7 from 51.6 in the third quarter.
The top business challenges cited by the CFOs surveyed for the first half of 2013 include revenue growth (23 percent of CFOs in the U.S.; 21 percent of CFOs in Europe) and expense control (28 percent in Europe; 14 percent in the U.S.).
The top economic worries for CFOs include consumer spending/demand, as well as government regulation (U.S.) and falling economic production or recession (Europe).
CFOs in both the U.S. and abroad are closely watching Congress's actions surrounding the U.S. debt crisis and critical deadlines for sequestration by the start of March. By and large, they are hoping that Congress will avoid a default on the government debt, followed by a deficit reduction agreement and U.S. debt downgrade, as more than half of respondents (59 percent in the U.S., compared to 51 percent in the EU) indicated that this outcome would have the most negative impact on their business.
When asked to predict the most likely outcome by Congress, at the time of polling, about two-thirds of the U.S. CFOs who responded to the survey said they believe that Congress will implement short-term increases in the debt ceiling, followed by incremental deficit reduction agreements.
CFOs in Europe also offered their predictions on the outcome. The majority (59 percent) believe the most likely outcome will be a long-term agreement to reduce the deficit. Approximately 13 percent of CFOs in the U.S. and 3 percent in Europe anticipate that sequestration will be triggered, with no government shutdowns.
“Congress's ability to control the U.S. debt and deficits will continue to be front and center in the minds of CFOs in the next few months," said FEI president and CEO Marie Hollein in a statement. “CFOs in both regions trust that Congress will ultimately come to an agreement, but U.S. CFOs believe that these actions will take place incrementally as we reach key deadlines. With the potential threat of sequestration now looming, the way in which Congress ultimately responds will likely have a significant impact on their optimism this year.”
U.S. CFO survey respondents were also asked about the impact of proposed recommendations by the Financial Stability Oversight Council regarding money market mutual fund reform. Fifty-eight percent of the U.S. CFOs surveyed said they felt that that proposed recommendations would not make them less inclined to use money market funds as a liquidity instrument, but the remaining 42 percent said this would affect their use of these funds.
The majority of CFOs have a moderate to high concern over the Eurozone (on a scale of 1 to 5). Seventy-one percent of U.S. CFOs and 65 percent of EU CFOs believe a recovery of the European economy would not begin to take place until 2014 or beyond.
Nearly half (43 percent) of U.S. CFOs believe an economic recovery in the U.S. would be delayed until at least 2014, while a third (35 percent) believe the U.S. is already in the midst of a recovery.
In terms of staffing, the majority of CFOs (83 percent in the U.S. and 70 percent in Europe) said they have not been forced to reduce headcount over the past 12 months. The survey found that 63 percent of U.S. CFOs and 42 percent of European CFOs plan to hire additional employees within the next six months.
More than half (57 percent) of the surveyed CFOs in the U.S. said they are now spending at a normal rate or making ambitious investments in capital, while 57 percent of the CFOs polled in Europe continue to spend cautiously. The survey also found that 81 percent of U.S. CFOs and 66 percent of European CFOs said they are not anticipating any change in their credit situation in the next six months.