Top finance executives gave the economy its highest score in five years and were significantly more confident about economic growth in 2013 compared to last year, according to a new survey that found more of them indicated their companies are expanding globally.
Executives who participated in Bank of America Merrill Lynch’s 2013 CFO Outlook Mid-Year Update gave the U.S. economy an average score of 58 out of 100, up from 49 in the previous survey conducted in late 2012. CFOs gave the global economy a score of 51, up from 45. The survey was conducted by Granite Research Consulting, which interviewed 250 CFOs, finance directors and other executives selected randomly from U.S. companies with annual revenues between $25 million and $2 billion. Interviews were conducted from late April to late May 2013.
In the survey, CFOs voiced stronger optimism this year about economic growth, with 55 percent anticipating expansion in 2013, compared with 39 percent in the previous survey. Only 10 percent said they expect the economy to shrink, down from 24 percent.
This confidence comes as U.S. companies continue to do more business in other countries, with 76 percent of CFOs reporting some type of activity in foreign markets. That figure is up from 73 percent in the previous survey and 67 percent one year ago, as more companies are buying from, selling to and establishing operations in non-U.S. markets.
“Beyond their brighter view of the economy, CFOs and their companies remain focused on new markets and opportunities for international growth,” said Alastair Borthwick, head of Global Commercial Banking at Bank of America Merrill Lynch, in a statement. “While expanding into other countries is attractive, doing business globally brings many challenges and often requires a wide range of financial solutions. More than ever, U.S. companies are seeking help with accessing capital, managing risk, maximizing cash and increasing efficiency as they grow their businesses.”
When asked about the potential concerns they have for the U.S. economy this year, executives overwhelmingly named health care costs, with 72 percent ranking it as a significant concern, up from 62 percent in the previous survey and 51 percent one year ago. The cost of health care also was the top financial concern for CFOs’ own companies, with 70 percent ranking it a significant concern, up from 58 percent and 51 percent. No other responses in the latest survey were above 50 percent. The survey responses were taken before the federal government’s recent announcement that the employer mandate in the Affordable Care Act would be delayed until 2015.
To offset costs related to the Affordable Care Act, the top actions listed by CFOs were increasing health care costs per employee, cutting spending elsewhere in their businesses, implementing preventative health care programs and raising prices on products and services.
The survey also found that 48 percent of CFOs expect their companies to hire employees this year, up from 45 percent in the previous survey. In terms of revenues and profits, 56 percent of CFOs expect revenue growth at their companies—the same percentage as in the previous survey—while 43 percent anticipate growth in profit margin, up from 40 percent.
CFOs gave the manufacturing sector a score of 57 out of 100, up from 53 in the previous survey, making it the highest mark since 2011. This was the seventh consecutive survey in which the sector received a score above 50.
When asked about foreign markets, 84 percent of the CFOs surveyed said their companies have operations in Canada or Mexico, 72 percent said Asia and the Pacific, 66 percent said Europe, the Middle East or Africa, and 25 percent said Latin America.
Asked about their foreign expansion plans, 37 percent of CFOs named Asia and the Pacific, 27 percent said Canada or Mexico, 15 percent said Europe, the Middle East or Africa, and 9 percent said Latin America.
The CFOs who were polled generally don’t expect a decline in sales to foreign markets, with 94 percent indicating they expect sales to stay the same or increase, up from 91 percent in the previous survey.
Among the challenges facing companies as they grow globally, the most common were having local, on-the-ground expertise—cited by 19 percent of CFOs—followed by risk management, a country’s economic stability and local/international laws, each at 18 percent.