Chief financial officers expressed less confidence and more caution about the economy and capital spending in the second quarter, according to a new survey.
The survey of 300 U.S. CFOs, by Financial Executives International and Baruch Colleges Zicklin School of Business, found CFOs noting they will face a number of added expenses over the next 12 months, including new costs related to taxes, financial regulatory reform and healthcare. While confidence is down, and areas such as IPO activity and the rate of capital spending remain slow, CFOs outlook toward credit is more favorable and various findings demonstrate substantial progress since 2009.
CFOs tapering confidence is reflected in some of their current and forward-looking business plans. When asked about their companies current capital spending, over two-thirds of respondents stated that they are still spending cautiously or holding off on all or nearly all capital investments (69 percent). This number is slightly less than the 84 percent who indicated the same behavior this time last year.
After rising for four consecutive quarters, the Q2 CFO Optimism Index for the U.S. economy experienced a nearly five-point decrease (down from 58.14 to 53.60). CFOs outlook for their own companies fell slightly from 69.49 to 67.40.
CFOs this quarter also indicated that they anticipate a number of newly added expenses to appear on their balance sheets over the next year. When asked about the potential impact of the financial regulatory reform package, the most-cited effect was increased banking costs (45 percent), followed by additional compliance and reporting requirements and costs (39 percent). Separately, the majority of CFOs (53 percent) also predict their taxes will increase. Despite expected tax increases, a large majority of CFOs (78 percent) remain confident that their business decisions will remain unaffected by the tax outlook.
With unemployment levels still high, it is not surprising that CFOs have retracted some of the economic confidence they expressed earlier this year, said FEI president and CEO Marie Hollein. We are seeing CFOs in recovery mode, and to prepare for potential costs in a number of areas, they are taking a more cautious approach to protect their companies in the long-term.
While cautiousness continues, CFOs are still demonstrating signs that conditions have changed since 2009. Despite this quarters dip, CFOs are considerably more optimistic than they were this time last year. CFOs economic confidence this quarter is 22 percent higher than Q2 2009 (41.90), and confidence in their businesses is up 31 percent from Q2 2009 (55.44). Similar to last quarter, CFOs are expecting increases in net earnings (20 percent), revenue (11 percent) and hiring and technology spending (both at 7 percent) over the next 12 months.
CFOs are now conveying more relief in their access to credit. Less than one-fifth of respondents (17 percent) feel that it will be more difficult to access credit over the next six months, compared to the 24 percent of CFOs who shared this sentiment when asked in the third quarter of 2009. A large majority now believe that credit conditions will remain the same, and an additional 21 percent believe access to credit will be easier. With regard to lending, most CFOs feel that amounts being lent have gone unchanged versus the start of the year.
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