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SOURCE Financial Executives International; Baruch College
MORRISTOWN, N.J. and NEW YORK, July 1, 2014 /PRNewswire/ -- With the first half of the year behind them, Chief Financial Officers are expressing more optimism in their businesses and towards the broader economy, finds the most recent survey of CFOs conducted by Financial Executives International (FEI) and Baruch College's Zicklin School of Business. According to the "CFO Quarterly Global Outlook Survey," which polls CFOs of public and private businesses in the U.S. and Europe on their economic and business confidence, respondents this quarter, particularly in the U.S. are upbeat on hiring, wages and capital. However, their longer term outlook for economic growth and the fate of the Eurozone remains less certain.
The quarterly optimism index for U.S. CFOs for the global economy averaged 54.96 (from 54.60 last quarter) and the CFOs were even more confident about the U.S. economy, which increased to 64.17 (from 62.00). Confidence among EU CFOs in the global economy averaged 54.80, up several points (from 51.40) the last time they were surveyed, and they were more optimistic regarding the U.S. economy than their US counterparts, with the index averaging 64.72 this quarter. However, when asked to rate their concern on a scale of one (not concerned) to five (very concerned), 70 percent of all EU CFOs and 75 percent of U.S. CFOs were moderately-to-very concerned about the fate of the Eurozone. Many CFOs also stated they believe a recovery of the European economy could take more than a year or two, with 32 percent of U.S. CFOs and 28 percent of EU CFOs predicting an economic recovery would not occur until 2016 or beyond.
U.S. CFOs' confidence toward their own businesses increased more than four points this quarter to 72.05 (from 67.70). EU CFOs' confidence in their businesses averaged 59.79 on the index, less than a point below what they reported in the fall of 2013 (60.60). More than a third of U.S. CFOs (38%) reported capital spending at a normal rate and another 21 percent are making ambitious investments in capital expenditures this quarter. Conversely, EU CFOs were more reluctant about both hiring and capital spending, as 62 percent indicated cautious spending this quarter with only a third of European CFOs anticipating hiring within the next six months. Those CFOs that were making capital expenditures most commonly invested in technology (68% in the U.S and 50% in the EU). U.S. CFOs indicated that in the next 12 months, they expect the largest increases in the areas of net earnings and revenue and EU CFOs anticipate smaller increases in capital spending in addition to revenue. While EU CFOs are expecting healthcare costs to increase less than one percentage point, U.S. CFOs are expecting a nine point increase on average. However, this represents a 20 percent decline in the expected increase in healthcare costs from the previous quarter (from 10.9 to 8.74).
Wage levels and employment for CFOs demonstrated overall stability and even increase this quarter.. This quarter, 67 percent of EU CFOs stated that the levels they are paying are about the same as the levels they paid this time last year, while this same percent of U.S. CFOs said the wage levels they are paying are on the rise. Nearly twice the percentage of U.S. CFOs (63%) plan to hire employees within the next six months compared with EU CFOs (33%) who are hiring. Those CFOs that plan to employ more individuals are most commonly seeking mid-career professionals, experienced and skilled technical workers and entry-level university graduates. Despite marginal progress in hiring, when asked the timeframe they anticipate their economy would reach full employment, the majority of CFOs said they see this as a long-term goal: Fifty five percent of U.S. CFOs and 47 percent of EU CFOs project that full employment would not occur until 2016 or beyond.
"This quarter, we asked our CFOs a number of questions related to their projections for longer term stability in the economy," said Linda Allen, Professor of Economics and Finance for the Zicklin School of Business at Baruch College. "The findings show that a majority of CFOs do not anticipate the return of a robust, full employment economy in the U.S. until 2016 or beyond, although they are rather optimistic about revenue and profitability growth in their own businesses. U.S, CFOs anticipate more hiring and capital investment in contrast to European CFOs who are less optimistic about prospects for European economic recovery (more than one half of European CFOs projected economic recovery in the second half of 2015 or later), and therefore are less likely to hire and invest in the near future."
Respondents of the survey were also asked to opine the effectiveness of government monetary policies in laying the groundwork for long-term economic growth in their respective regions and the Fed's policies were the clear winner for both EU and U.S. CFOs. More than half of U.S. CFOs thought that the Fed's policies were effective: thirty-two percent thought the Fed was more effective than the ECB, along with an additional 19 percent who believed that both policies were relatively effective. In Europe, three in four CFOs were favorable of the Fed's policies: forty-five believed the Fed's policies were more effective, and another 30 percent thought both were effective. Only five percent of U.S. CFOs and nine percent of EU CFOs believed the ECB's policies had been more effective.
In light of several major foreign relations headlines that have impacted the U.S., including Benghazi, the Syrian Civil War, the China-Japan territorial dispute, the Russia-Ukraine conflict, and the Chibok Nigeria schoolgirl kidnapping, the majority of CFOs believed that the U.S. public's reactions to the Administration's handling of these issues suggests both a growing criticism of the Obama Administration for a weak foreign policy (67% of U.S. CFOs and 41% of EU CFOs) as well as a "concern with the increasing costs of U.S. commitments abroad" (31% of U.S. CFOs and 32% of EU CFOs).
U.S. CFOs Avoid Recession Woes and Want Tax and Healthcare Reforms
Similar to the sentiment shared in previous quarters, over a third of U.S. CFOs (39%) said they believe the U.S. is already in a recovery, but only 16 percent said a recovery could take place by the first half of 2015. Twenty-one percent of respondents said that a U.S. economic recovery will take place in the second half of 2015, and the same percentage believed that the recovery will be postponed until 2016 or later. Still, the majority of U.S. CFOs indicated they do not believe a recession is imminent. Fifty-six percent of U.S. respondents said they do not believe the U.S. will enter a recession in the next two years; 36 percent said it was too soon to determine.
In the past six months, U.S. CFOs stated that their companies experienced an average increase of five percent in related costs from the Patient Protection and Affordable Care Act. With the initial implementation of the Affordable Care Act exchanges now underway, the majority of U.S. respondents (63%) said they believe Congress should now focus on reforming the ACA, compared with 37 percent who believe Congress should continue to try to repeal the Act.
U.S. CFOs also revealed an overwhelming dissatisfaction with the current U.S. tax laws. The majority of respondents gave the laws the lowest possible ranking of "one" when asked to measure their confidence (on a scale of one to five). Despite their disproval, a large percentage of U.S. CFOs (84%) said they have not considered taking their businesses abroad to have access to a more competitive tax rate or a territorial tax system.
"While the fear of a U.S. recession seems to be over for the immediate future, CFOs in the U.S. are focusing their attention on tax reform and healthcare, two economic concerns that widely impact their businesses," said Marie Hollein, President and CEO, Financial Executives International. "The majority of U.S. CFOs do not have plans to take their businesses abroad and are not asking for a repeal of Obamacare. They want reform - a comprehensive and fair solution that protects the interests of U.S. companies."
Additional findings from the CFO Quarterly Global Outlook Survey include the following:
Full survey results and historical data comparisons are available at www.financialexecutives.org or from Nicole Madison at email@example.com. The study is also available online at the Financial Executives Research Foundation bookstore and on the Baruch College home page at www.baruch.cuny.edu.
Overview of the Survey:
This quarter, the CFO Quarterly Global Outlook Survey, conducted by Financial Executives International and Baruch College's Zicklin School of Business, interviewed 112 corporate CFOs from the United States and 103 corporate CFOs from Italy and France electronically from May 28th – June 15th. CFOs from both public and private companies and from a broad range of industries, revenues and geographic areas, including some off-shore companies, are represented. The U.S. survey respondents are members of Financial Executives International; France survey respondents are members of Association Nationale Des Directeurs Financiers Et Du Controle De Gestion (DFCG) and Italy survey respondents are members of Associazione Nazionale Direttori Amministrativi E Finanziari (ANDAF). Financial Executives International has been conducting surveys gauging the country's economic outlook from the perspective of CFOs for more than 12 years.
Financial Executives International is the leading advocate for the views of corporate financial management. Its almost 11,000 members hold policy-making positions as chief financial officers, treasurers and controllers at companies from every major industry. FEI enhances member professional development through peer networking, career management services, conferences, research and publications. Members participate in the activities of 74 chapters in the U.S. and a chapter in Japan. FEI is headquartered in Morristown, NJ, with a Government Affairs office in Washington, D.C. Visit www.financialexecutives.org for more information.
Baruch College is a senior college of the City University of New York. The Zicklin School of Business at Baruch College is the largest and most diverse AACSB accredited collegiate school of business in the nation. Baruch has a long tradition of producing accounting and finance graduates who become leaders as CPAs and CFOs. For more information, visit www.baruch.cuny.edu.
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