Survey: Economic, Business Confidence Plummets Among U.S./Europe Chief Financial Officers
CFOs Split on Likelihood of Greek Default; Strength of U.S. Competitiveness
U.S. CFOs Give Obama "F" Grade for Economy, Healthcare and Employment
MORRISTOWN, N.J. and NEW YORK, N.Y., November 21, 2011 - Business and global economic confidence among Chief Financial Officers continues to dive to some of its lowest levels in over a year, according to the most recent survey of CFOs conducted by Financial Executives International (FEI) and Baruch College's Zicklin School of Business. The quarterly "CFO Outlook Survey," which polls CFOs of public and private businesses in the U.S. and Europe (Italy and France) on their economic and business confidence and expectations, reveals that CFOs are uncertain about the financial and political turmoil engulfing them and impacting their business outlook. With a pending election and debt reduction a major focus, U.S. CFOs in particular are highly critical of their President, giving him a failing grade for his handling of the economy, healthcare and unemployment.
Reflecting an unstable and uncertain financial outlook, confidence among U.S. CFOs in the U.S. economy took a significant drop from where it stood at the middle of 2011. The CFO Optimism Index dropped eight points from the previous quarter (59.00 to 51.1 in Q3), the lowest since Q2 2009. The third quarter index for the global economy also experienced a survey low for both U.S. and European CFOs: optimism among the U.S. dropped nearly 14 points from the previous quarter (59.40 to 45.5 in Q3), and fell below CFOs in Europe for the first time, which also dropped eight points (55.10 to 46.8 in Q3). U.S. CFOs' optimism in their own companies also declined five points from the second quarter (72.30 to 67.3); while CFOs in Europe had a smaller drop in business confidence quarter over quarter (63.2 to 61.0 in Q3), it remains lower than their colleagues across the pond.
In comparison with the projections made in the previous quarter, CFOs see smaller increases in several areas of their businesses over the next 12 months. U.S. CFOs this quarter expect a 16 percent increase in their net earnings (down from a 21% increase in Q2), a 13 percent increase in capital spending and 10 percent uptick in technology spending. CFOs in Europe anticipate even smaller increases for the next year-- technology spending, capital spending and revenue increases averaging about two to three percent, while seeing small decreases in hiring and inventory.
"Our quarterly survey polls CFOs from three countries that are suffering from the events of the past year. The most recent findings reveal their shaken confidence in prospects for a stable economy and strong business growth," said John Elliott, Dean of the Zicklin School of Business at Baruch College. "CFOs are closing out the year in a worse position than when they began; and are forced to make tough decisions to protect their business and prepare for a tumultuous road ahead. This quarter, there is no clear region on top -- U.S. and European CFOs all see an uncertain economic future."
U.S. and European CFOs varied in the ways in which they view the U.S. as a competitive nation in the global economy, in light of recent activities. U.S. CFOs were generally split in their perception of the U.S. following the S&P downgrade and related gridlock in Washington as a result of the debt woes -- while 48 percent saw the U.S. as less competitive, a similar number (50%) didn't feel it had impacted their views of the U.S. European CFOs sentiment toward U.S. competitiveness remained more neutral, with 60 percent stating the downgrade hadn't influenced their view of the U.S. Yet another 37 percent of CFOs across the pond now perceive the U.S. as less competitive. When it comes to the Greek debt crisis, 65 percent of U.S. CFOs think a Greek default is imminent -- in comparison, European CFOs were split, with 42 percent taking each side (17% felt it was too soon to determine). Both U.S. and European CFOs' felt the most likely ramification of a Greek default would be the impact to other European countries (56% of respondents in the U.S. and 61% in Europe).
U.S. CFOs Highly Critical of Obama; Debt Reduction Remains a Priority Moving into 2012 Election
As optimism over their companies and the overall economy plummet, fewer U.S. CFOs are convinced that the U.S. economy is at, or near a recovery. This quarter, a mere 12 percent of U.S. respondents felt that a recovery has occurred -- less than half the 27 percent that held this view last quarter. Instead, CFOs have changed their forecast and now more than half believe that a recovery will not begin until 2013 or beyond (55%).
The conclusion of President Obama's first term and the start of the 2012 elections is upon the U.S., and CFOs have begun to evaluate his performance and make initial decisions on their preference for the next President. CFOs gave President Obama high marks for his role in safeguarding national security - nearly half (49%) gave him an A or B grade -but their perception of his performance in other areas was less than favorable. More than half of U.S. CFOs stated that they would give the President an F grade for his performance in healthcare (57%), employment (53%) and the economy (54%). Their rating of his performance toward education and the environment was average, with 42 percent and 44 percent giving him a C grade, respectively. With nearly three quarters of U.S. respondents planning to vote Republican for the 2012 election (74%), only 14 percent chose the incumbent President as their preferred candidate at this point in the race. Former Governor Mitt Romney was the top choice among respondents, with nearly a third (31%) selecting him as their preferred candidate, with Herman Cain a distant second (16%), and close to a quarter (23%) remain undecided on their candidate pick.
Between now and the 2012 election, the reduction of the national debt will be a key area of focus for U.S. CFOs. More than half of respondents (54%) desire Congress to direct their attention to decreasing the deficit by the $4 trillion dollars needed to stabilize the debt in order to promote a better economic environment for U.S. businesses and increase job creation. A third (33%) of U.S. CFOs believe the focus should be on tax related measures (9%) and stimulus programs (7%), or a combination of the two (17%). Still, U.S. CFOs were largely doubtful that the recommendation by the appointed Super Committee on deficit reduction will be accepted by Congress. Nearly three quarters (73%) believe Congress will fail to adopt the recommendation; only 12 percent are hopeful that it will be adopted.
"With national debt looming as a big issue, U.S. CFOs no longer see an economic recovery as a near term goal," said Marie Hollein, president and CEO of Financial Executives International. "It is clear that this will have a direct impact on their decisions during the 2012 elections. CFOs remain critical of President Obama, and the Administration's handling of the deficit will influence how they ultimately choose to vote."
Other findings from the CFO Outlook Survey include:
- Global Leadership: CFOs differed by region when it came to the global leaders they respected most. U.S. CFOs were most favorable of Chancellor of Germany Angela Merkel for economic policies, but ranked their own President Obama to number four out of twelve. CFOs in Europe shared a reverence for Merkel, but also weighted Obama high on their list (above their own leaders).
- Hiring: Despite their pessimism about the economy, a surprising 54 percent of U.S. CFOs are still planning to hire additional employees at their company in the next six months (about a third (34%) do not plan to hire) -a similar sentiment to what was reported in the previous quarter. Meanwhile, 52 percent of Europe CFOs are not planning to hire additional workers in the next six months, and only 38% plan to add to their workforce. More than a third (34%) of U.S. CFOs consider the continued economic volatility to be the factor with the biggest impact on hiring decisions.
- Unemployment: U.S. and European CFOs are both forecasting generally high unemployment rates for the next year, but while CFOs in U.S. on average see this slightly declining (9.2% six months from now to 8.9% in a year), European CFOs feel the rate will increase (8.1% six months from now; 8.6% in a year).
- Taxes: With respect to tax reform proposals, U.S and European CFOs were least willing to give up the exclusion of employers' contributions for their employees' medical insurance premiums and medical care (21% in the U.S. and 29% in Europe) in exchange for lower business tax rates. For U.S. respondents, the mortgage interest deduction (18%) was the next tax benefit they would prefer not to lose, closely followed by the exclusion of contributions to and earnings of employer-provided and individual retirement plans (17%), which was also favored by 23 percent of CFOs in Europe.
- Inflation: Concerns over inflation are worsening among European CFOs, but it appears to be less of an ongoing concern among their U.S. counterparts. When asked to rate their inflation concerns on a scale of one to five (with five being the highest level of concern), 76 percent of U.S. CFOs selected a three or lower, while 62 percent of European CFOs selected a three or higher. While the majority of those surveyed in both regions felt their level of concern was unchanged from last quarter, nearly a fifth (19%) of European and U.S. respondents said they were more concerned since last quarter -- 12 percent of U.S. and 6 percent of European CFOs said they were less concerned.
- Oil Prices: This quarter, CFOs also expect oil prices to drop and remain under $100 -- the overwhelming majority of CFOs in the U.S. (77%) and Europe (74%) predict the price of oil per barrel will be at $90 or lower in the next six months, which was nearly $103 when the survey was conducted.
- Risk Controls: In light of rogue trading scandals over the past few years, most U.S. CFOs have not considered increasing budgets toward improving risk management controls (65%), while the majority of European CFOs have considered increasing their budgets in this area (56%). CFOs believe risk management oversight should lie at the Board level (39% of Europe CFOs and 33% of U.S. CFOs), but many take the responsibility on themselves, believing the task should fall with the CFO (25% of Europe CFOs and 29% of U.S. CFOs).
- Fraud: In today's highly digital world, 53 percent of European CFOs stated that they regularly review content on their company's social media activity to identify potential fraudulent activity, compared with only 34 percent of those in the U.S.
Additional findings include CFO's forecast on their local rate of inflation. Full survey results and historical data comparisons are available at www.financialexecutives.org or from Nicole Madison at Nicole.Madison@fticonsulting.com
Overview of the Survey:
This quarter, the CFO Outlook Survey, conducted by Financial Executives International and Baruch College's Zicklin School of Business, interviewed 309 corporate CFOs from the United States and 91 corporate CFOs from Italy and France electronically from October 17th -October 31st. 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 11 years.
Financial Executives International 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 at companies from every major industry. FEI enhances member professional development through peer networking, career management services, conferences, teleconferences and publications. Members participate in the activities of 85 chapters, 74 in the U.S. and 11 in Canada. FEI is headquartered in Morristown, NJ, with additional offices in Washington, DC, and Toronto. 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.
Media Contact: Nicole Madison of FTI Consulting +1-212-850-5647