Survey: CFOs’ Economic Confidence Up; Identify Most Effective Actions Taken to Navigate Downturn
- CFOs Debate Health Care as Costs Continue to Increase;
Employees Likely to Feel the Impact -
Projections for Recovery Shift to 2H 2010, but do Not Foresee Double Digit Employment Rate
FLORHAM PARK, N.J. and NEW YORK, October 02, 2009 - Chief financial officers revealed a heightened sense of confidence toward the U.S. economy and their own companies, in the third quarter “CFO Outlook Survey” conducted by Financial Executives International (FEI) and Baruch College’s Zicklin School of Business. Still, CFOs are hesitant to declare a start to the recovery, and with health care top of mind, they report that although the worst may be behind us, there is still a long road ahead.
With September marking the one-year anniversary of the financial crisis, CFOs had an opportunity to take a look back at the effects on the economy and their companies as well as specific actions taken to navigate the downturn. The survey demonstrated clear signs of improvement across the board. The CFO Optimism Index for the U.S. economy jumped significantly from 41.9 in Q2 to 54.2 in Q3 (a rating not seen since March 2008). Similarly, CFOs’ financial prospects for their own companies soared more than 12 points from last quarter’s all-time low of 51.44, to 64.10. Respondents also foresee increases to their companies’ financial positions over the next year, which include predictions of an 11 percent increase in net earnings and a six percent increase in revenue. Over the next 12 months, CFOs expect increases in technology spending, as well as the first uptick in hiring and capital spending reported in four quarters.
When asked to identify which actions taken in response to the downturn were most effective, the majority of CFOs (58%) pointed to a reduction in work force. This was followed by retention of talent (22%), and redesigning products in order to lower cost (21%).
“The findings of this quarter’s CFO Outlook Survey revealed the first palpable sense of optimism in over a year,” said John Elliott, Dean of the Zicklin School of Business at Baruch College. “This represents a variation from the first half of 2009, when CFOs were forced to be extremely cautious and make some difficult, but necessary, decisions in terms of cost cutting and employment. We now see a number of clear indicators that these actions have paid off – from the anticipated rise in their earnings to the ease in accessing credit. For the first time this year, we sense a small sigh of relief – CFOs are demonstrating renewed confidence as they strive to identify the ‘new normal’.”
Rise in Health Care Costs, Dip in Employee Benefits Ahead
While only about 16 percent of respondents consider health care costs to be one of their top two economic concerns for 2009, CFOs are closely watching the debate over health care reform. Health care costs have consistently been one of the areas where CFOs forecast high increases in spending, predicting increases quarter over quarter since June 2004. This quarter, on average, they anticipate an eight percent increase in health care costs at their companies over the next 12 months. To offset these rising costs, the impact will likely be felt by their employees, as nearly 58 percent of CFOs say their companies are considering an increase in the employee’s share of monthly health care benefit costs. Another 20 percent are mulling over a decrease in the quality and scope of employee packages.
This quarter’s survey also explored CFOs’ opinions on the current health care debate. While nearly all of those surveyed (98%) said their company provides health care benefits as a standard part of its employee benefit package, a majority of CFOs (65%) do not believe benefits should be required. Among health care reform proposals by the current administration, the reduction in long-term growth of health care costs for businesses and government was CFOs’ number one concern (58%), while flexibility for their employees to choose their providers was the second most-cited concern (41%).
“Health care and its wide-ranging effects on CFOs, companies, employees and the country will undoubtedly maintain momentum as an issue of concern, with all eyes fixed on the government’s next action toward reform,” said Marie Hollein, CEO and President, Financial Executives International. “The bottom line is these burgeoning costs for companies will trickle down to their employees, with nearly three quarters of CFOs considering raising fees or cutting benefits. While this is alarming, it further reiterates the need for the Administration to find a resolution to the health care issue that will benefit both the serious needs of individuals and American companies at a crucial time in restoring the U.S. economy.”
This quarter’s survey also revealed other reductions in employee benefits, with over a quarter of CFOs already having suspended or reduced 401(k) match (29%), or reducing the number of work hours per week (26%). Additionally, more than one in ten CFOs have implemented forced vacations (14%); frozen or closed pension plans [1] (13%), or reduced the percentage of carry over vacation days (13%).
Economic Indicators: CFOs See Improvement, But Full Recovery Will Take Time
The survey gauged CFOs’ sentiment on certain key economic indicators. When asked their expectations on the rate of inflation [2], CFOs on average felt that it will dip to 2.7 percent by February 2010, but by this time next year it could increase back to around four percent. CFOs revealed more level forecasts of the unemployment rate over the next 12 months, and predicted that the rate (9.7 percent for August 2009) will not climb to double digits, and will remain around 9.2-9.8 percent.
While CFOs note improvements in the economy, many are still hesitant to declare that the recession is, or is even soon to be, behind us. This represents a shift in their outlook from the last two quarters, when the majority of CFOs predicted recovery by the first half of 2010 or earlier. Asked in the third quarter of this year when they believe key indicators will collectively improve and result in the start of a recovery in the U.S. economy, 40 percent felt it will be the second half of 2010, and more than one-fifth (22%) believe it will be 2011 or beyond. Only ten percent believe we are already in the midst of a recovery, and twenty-eight percent predict recovery during the first half of 2010.
Additional Results: Constant Connection?
Additionally, the survey examined CFOs’ level of online activity at, and away from, work. Nine out of ten CFOs (88%) admit they are “connected to their work all of the time.” CFOs said they spend an average of six hours during the work day online for business. While on vacation, they confess to spending an average of two hours per day online for business.
The survey also explored CFO’s top economic concerns, their opinions toward increased government regulation in private business, and the effects of Obama’s presidency.
Full survey results and historical data comparisons are available at www.cfosurveys.com or from Nicole Madison at Nicole.Madison@fd.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:
Additional topics CFOs were surveyed on include their sentiment toward President Barack Obama and the administration. This quarter, the CFO Outlook Survey, conducted by Financial Executives International and Baruch College’s Zicklin School of Business, interviewed 262 corporate CFOs electronically from August 31 through September 10. 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. Survey respondents are members of Financial Executives International.
Financial Executives International has been conducting surveys gauging the country’s economic outlook from the perspective of CFOs for more than 11 years.
About FEI
Financial Executives International (FEI) is the leading advocate for the views of corporate financial management. Its 15,000 members hold policy-making positions as chief financial officers, treasurers, and controllers. FEI enhances member professional development through peer networking, career planning services, conferences, publications, and special reports and research. Members participate in the activities of 84 chapters, 73 of which are in the United States and 11 in Canada.
Financial Executives Research Foundation (FERF) is the non-profit 501 (c)(3) research affiliate of FEI. FERF researchers identify key financial issues and develop impartial, timely research reports to FEI members and non-members alike, in a variety of publication formats.
For more information, visit www.financialexecutives.org.
About Baruch
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.
For more information, visit www.baruch.cuny.edu.
Media Contacts: Nicole Madison of FD +1-212-850-5647; Kristen Lewko of FD +1-212-850-5756
Footnotes:
[1] - Defined benefit pension plans.
[2] - On an annualized basis. The rate of inflation for the last year was 3.85%.
