Despite acknowledging the impact of higher producer prices, chief financial officers expect higher capital and technology spending at their companies during the next 12 months, according to a recent survey.
The 185 corporate CFOs surveyed this month expect capital spending at their companies to increase by 14 percent in the next year, compared to an 8 percent increase predicted last quarter. Survey respondents forecast a 12 percent rise in technology spending versus 7 percent last quarter, according to the "CFO Outlook Survey" conducted by Financial Executives International and Baruch College's Zicklin School of Business.
Despite the fact that more than half of those polled (56 percent) said that their companies have felt the impact of rising producer prices last quarter, CFOs are still upbeat on the economy. While the optimism index dipped slightly for the second consecutive quarter, at 70.78 (out of 100), it's close to its June high of 73.55. Of those who said that they're feeling the impact of rising prices, 77 percent of that group plan to pass along at least half or all of the increased costs to consumers.
When asked about permanent changes resulting from Sarbanes-Oxley Section 404 relating to the testing and reporting of internal audit controls, 30 percent of CFOs cited better control over documentation of systems changes, while 21 percent said that they had invested in a technology solution to monitor compliance and maintain and store internal control documentation. More than half (57 percent) said that they had made "no substantive changes," according to FEI and Baruch.
Interestingly, a significant number of CFOs are expecting a greater increase than the markets are. About one in three CFOs said that the futures markets - which have been assuming that the Libor rate will rise to 3.36 percent in the next 12 months - are underestimating the rise, while just over half of the respondents thought this rise is "just about right."
Burton Rothberg, assistant accounting professor at Baruch, noted that in the last two quarters, the CFOs surveyed have correctly predicted that futures markets were overestimating future increases in interest rates.
When asked about one of President Bush's stated priorities for the next term - the privatization of Social Security - 60 percent of CFOs said that they support the privatization of a portion of Social Security, with 80 percent of that group saying that they believe privatization gives employees more control over their financial future. Slightly more than half believe that the Social Security Trust won't have adequate funds to provide for future generations.
Among those who don't support privatization, the most common reason was that the government would ultimately have to compensate for poor investment choices. Ranking second was the opinion that the average employee is not qualified to make successful long-term investment decisions.
The full survey results are available online at www.cfosurveys.com.
