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Duke University/CFO Survey: Cautiously Optimistic Recommended

Posted by Larry Doyle on March 7, 2012 1:07 PM |

Hot off the press, I just received the Duke University/CFO Magazine Global Business Outlook Survey. The survey highlights reasons for real optimism domestically but with ongoing concerns and risks as well. Let’s dispense with the formalities and dive right in to the voluminous amount of detail within this cutting edge and timely release.

Where else are you getting this sort of real time insight?

Let’s navigate.

DURHAM, N.C. — Optimism among U.S. and Asian chief financial officers jumped this quarter and the hiring outlook is strong for 2012. European CFOs also say 2012 will be an improvement over a difficult 2011. >>>>>>>>

These are some of the findings of the most recent Duke University/CFO Magazine Global Business Outlook Survey. The quarterly survey, which concluded March1, asked 873 CFOs from a broad range of global public and private companies about their expectations for the economy.

The survey has been conducted for 64 consecutive quarters, making it the world’s longest running research on senior finance executives and one of the most comprehensive surveys of its kind. Presented results are for U.S. firms unless otherwise noted.

— Earnings and capital spending are both expected to rise more than 7 percent.

— U.S. finance chiefs plan to expand their workforces by slightly more than 2 percent on average over the next 12 months, a staffing increase that would bring the unemployment rate below 8 percent.

— Sixty-eight percent of U.S. CFOs say they are actively trying to fill vacant job positions, and many firms are recruiting more aggressively to fill the slots.

— Nearly 40 percent of U.S. CFOs say their firms will be active in mergers and acquisitions this year.

The employment outlook has brightened, with U.S. finance executives expecting to increase their number of domestic full-time employees by 2.1 percent. “The expected increase in employment is a welcome improvement over last quarter’s 1.5 percent forecast growth rate,” said Kate O’Sullivan, director of content development at CFO Magazine. “It indicates that national unemployment should fall below 8 percent in 2012.”

More than two-thirds of U.S. CFOs say their companies are currently trying to fill vacant positions. Among these firms, nearly half say they have had difficulty filling some jobs. In an effort to fill their vacancies, 60 percent of CFOs say their companies are recruiting more actively, 55 percent have expanded their search areas, 35 percent say they plan to hire workers who are “too junior” and train them for the job, and 34 percent say they will increase wages to attact more job candidates. Fewer than four percent of companies plan to offer better benefits as an enticement.

The U.S. CFO Optimism Index, in which CFOs rate their confidence in the economy on a scale of 0 to 100, increased from 53 last quarter to 59 this quarter, equaling the index’s long-term average.

“This rebound is encouraging because increases in CFO optimism have historically preceded improvements in the overall economy,”said John Graham, a professor of finance at Duke’s Fuqua School of Business and director of the survey. “Optimism also rebounded in Europe and Asia, suggesting that 2012 should be a better year than 2011.Still, European optimism lags behind the rest of the world.”

CFOs cite weak consumer demand, intense pressure on profit margins, and the difficulty in attracting and retaining qualified employees among the top concerns for their companies.

U.S. finance chiefs plan to increase capital spending by slightly more than 7 percent and expect to boost tech spending by 6 percent over the next year. Capital spending growth will be especially strong in the energy and manufacturing sectors.

Nearly 40 percent of U.S. CFOs say their companies plan to be active in mergers and acquisitions this year, acquiring all or part of another firm. Tech, communications/media, and health care should be especially active sectors, with more than half of companies in those industries expected to make acquisitions. Earnings at public companies are expected to rise by more than 7 percent.

“The recovery is still very fragile. More than half of the largest firms see a significant threat to their businesses if there are bank failures in Europe,” said Campbell Harvey, a Fuqua finance professor and founding director of the survey. “The high-tech industry is particularly worried about how Europe in disarray will impact their profits.”

The Obama Administration has announced its desire to increase the tax rate on dividend income to nearly 40 percent for people earning more than $250,000. Thirty-six percent of CFOs at dividend-paying companies say this increase in taxation would lead them to reduce the amount they pay out as dividends (relative to their dividends if the tax rate were to remain at its current level).

Nearly 11 percent of dividend-payers say they would pay their shareholders a large special dividend before the end of 2012, ahead of the scheduled increase in 2013.

Unlike their U.S. counterparts, European CFOs plan further layoffs in the year ahead, saying they expect to reduce their domestic fulltime workforce by 1.5 percent over the next year. Capital spending (3 percent) and earnings (5 percent) growth will be modest.

European optmism increased from December lows and is on par with early Fall 2011 optimism levels. Nearly half of European finance executives believe 2012 will be a better year for their firms than 2011. Fewer than 20 percent think it will be worse. Thirty-six percent of European finance chiefs plan to make an acquisition in the next 12 months.

Optimism about the regional economy in Asia surged to approximately 65 on a scale of 100. Nearly 60 percent of Asian CFOs say 2012 will be a better year for their firms than 2011, compared with 16 percent who say it will be worse.

Wage growth in Asia is expected to be 8 percent over the next 12 months, while full-time domestic employment in Asian countries should increase nearly 4 percent. Three-fourths of Asian CFOs say the European debt crisis is negatively affecting their businesses, with 23 percent saying the negative effect is significant.

Asian CFOs are concerned about intense price pressure, global finanical instability and uncertainty, and low employee productivity and morale.

Thank you again to my friends at Duke who share this fabulous and comprehensive review.

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.

Larry Doyle


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