DECLINE! CFOs Look at Future of Economy

By US Daily Review.

Chief Financial Officers remain in a holding pattern in the first few months of 2013, according to findings from the most recent survey of CFOs conducted by Financial Executives International (FEI) and Baruch College’s Zicklin School of Business.  CFOs in Europe and the United States have lowered their projections for hiring and have increasing concerns about the fate of the Eurozone. In a season of increased regulatory changes, U.S. CFOs are directing most of their concerns toward the impact of healthcare reform and the anticipated changes in their insurance coverage.

Respondents to the “CFO Quarterly Global Outlook Survey,” which polls CFOs of public and private businesses in the U.S.,Mexico and Europe (Italy and France) on their economic and business confidence, are retreating slightly from their enthusiasm from the previous quarter.  The quarterly optimism index for U.S. CFOs toward their own businesses decreased slightly to 67.1 (from 69.50 in the fourth quarter). U.S. CFO’s confidence in the global economy also dipped modestly to 50.8, following an eight point increase in the previous quarter (to 52.2). Confidence among EU CFOs toward the global economy also fell two and a half points to 48.8 (from 51.30 in Q4), while their confidence in their own businesses saw a slight increase (59 from 57.50 in Q4).   U.S. CFOs experienced a slight increase in their confidence toward the U.S. economy from the previous quarter (58.5 from 56.7 in Q4), but it remained lower in comparison to their EU counterparts.  European CFOs were most optimistic toward the U.S. economy, which averaged at 62.4 for the quarter (compared with 59 in the previous quarter).

CFOs are alarmingly less optimistic in their hiring prospects for the rest of the year. This quarter, 59 percent of European CFOs do not plan to hire additional employees within the next six months, compared to 37 percent who plan to hire. EU CFOs are also forecasting an increase in unemployment rates to almost 11 percent a year from now.   While the majority of U.S. CFOs (54%) are planning to hire in the next six months, this represents a statistically significant decline from the 63 percent who were hiring last quarter. U.S. CFOs are expecting a very small reduction to the unemployment rate to around 7.4 on average in a year.

CFOs on both sides of the pond also remain anxious in regard to the fate of the Eurozone. Similar to previous quarters, when asked to rate their concern on a scale of one (not concerned) to five (very concerned), more than three quarters of all European CFOs (76%) and the overwhelming majority of U.S. CFOs (90%) were moderately to very concerned. CFOs continued their belief that a recovery in the European economy is more than a year out, with 82 percent of U.S. CFOs and 84 percent of EU CFOs predicting that a recovery would not begin to take place until 2014 or beyond. However, similar to the sentiment shared in the previous quarter, over a third (35%) of U.S. CFOs believe the U.S. is already in a recovery.  Thirty-four percent believe that a U.S. economic recovery will take place in 2014, while only 18 percent believe that the recovery would be delayed until 2015 or later.

“Despite the belief that the U.S. economy will recover by 2014, U.S. CFOs expect unemployment rates to remain high over the next year,” said Linda Allen , Professor of Economics and Finance for the Zicklin School of Business at Baruch College. “Survey results show a reduction this quarter in the number of U.S. CFOs with plans to hire additional staff, perhaps because of their concerns about healthcare and technology costs. Their confidence and hiring plans are also impacted by the ongoing Eurozone economic malaise, which is not expected to be alleviated soon.”

On average, European CFOs had about 14 percent of their assets currently held in cash as compared to about 11 percent cash holdings reported by U.S. CFOs. Fifty-nine percent of European CFOs and 58 percent of U.S. CFOs did not have excess cash on their books. Nearly a fifth (19% in the EU and 21% in the U.S.) of the total respondents stated that they had excess cash, and had plans for its expenditure, whereas 16 percent of EU CFOs and 22 percent of U.S. CFOs stated that they had no plans to use their excess cash at the current time.  U.S. CFOs continued to forecast higher projections for their businesses than did their European counterparts, with the highest increases expected this quarter in net earnings (12%) which is offset by anticipated increases in health care costs (10%) over the next 12 months. Continuing the trend from previous quarters, European CFOs expressed smaller projections for their expectations in these business areas, with the highest increases in revenue (1.9%) and technology (3%). This quarter, they also expect to see a decrease in hiring (-0.3%), capital spending (-0.4%) and inventory (-2%).

Additional areas of U.S. CFOs’ investment activity include social media marketing (42%), risk management (40%), research and development and cyber security (both 33%). European CFOs were most commonly directing investments toward research and development (42%), closely followed by risk management (40%) and the expansion of production capacity (33%).

U.S CFOs Taking Action to Offset Added Costs of Healthcare Act

While the majority of U.S. CFOs have not yet experienced an impact on their business as a result of sequestration this year (66%), they remain concerned over the impact of healthcare changes they are being forced to make. When asked about the specific areas that insurance coverage regulations from the Patient Protection and Affordable Care Act have impacted plans for their company, 41 percent of U.S. CFOs have increased the employee contribution, and 31 percent have changed their existing health plan.  A quarter of U.S. companies have also decreased the quality of benefits, while only 12 percent indicated that they had increased their company’s contribution.  U.S. CFOs also anticipate that further changes to their insurance coverage will be needed in response to the healthcare regulations: increasing the employee co-pay (42%), reducing benefits for employees (31%) and decreasing the quality of the healthcare package (23%) were at the top of the list.

“Over the next several years, U.S. companies will undoubtedly feel the impact of both the fiscal crisis and many regulatory changes, and in 2013 CFOs are facing challenges as they relate to insurance coverage,” said Marie Hollein , President and CEO, Financial Executives International. “Our results show that unfortunately employees are going to feel the brunt of this impact, by way of higher premiums and potentially decreased healthcare benefits. On a macro level, this is most certainly having an impact on their hiring and overall optimism in the economy, and should not be overlooked.”

U.S. CFOs also generally felt that a Supreme Court mandate that same-sex marriages be recognized throughout the U.S. would not have an impact on their business (84%).  Most commonly, U.S. CFOs felt that they might need to increase benefits for dependents.

Other findings from the CFO Global Outlook Survey include the following:

  • M&A Activity: More than half of U.S. CFOs (54%) believe the recent increase in M&A activity is attributed to a lack of other investment opportunities. More than a third (35%) of EU CFOs were unsure of the reason for this increase and 24 percent of U.S. CFOs and 28 percent of European CFOs believed that it was attributed to a strengthening recovery (28%), over lack of other investment opportunities (17%). With regard to their own businesses, 61 percent of U.S. and European respondents stated their company’s interest in acquisitions was unchanged relative to the previous quarter.  While a smaller percentage of CFOs said M&A interest toward their company had increased (31% in the U.S. and 24% in Europe), the amount of CFOs who experienced a decrease in activity was only ten percent among EU CFOs and eight percent among U.S. CFOs.  In both regions, the large majority of CFOs saw no change in their company’s interest as an acquisition target.  The majority of CFOs that are targeting areas for acquisitions are primarily looking for opportunities closer to home – 55% of EU CFOs selected Europe while 60 percent of U.S. respondents selected North America as their target region.
  • Strength of the U.S. Dollar: U.S. respondents believe that the U.S. dollar exchange will slightly strengthen against the Euro and the Pound in the next 6 to 12 months, while weakening against the Yen during the same time period, similar to the sentiments shared six months ago when the same question was asked. In Europe, CFOs on average expect the exchange rate to remain relatively unchanged against the Euro and the Pound, while weakening substantially against the Yen in the next 6 to 12 months. When asked about their predictions on the Renminbi (the official currency of the People’s Republic of China) over the next year, the large majority of CFOs (61% of U.S. CFOs and 63% of EU CFOs) believe that it will likely remain relatively stable.  Nearly a quarter of CFOs (23% in the U.S. and 24% in the EU) believe that it will strengthen against the U.S. dollar by more than five percent.
  • Inflation: When asked to gauge their level of concern toward inflation over the next 12 months, respondents in Europerevealed a low-to-moderate concern this quarter – nearly 80 percent of U.S. respondents and 85 percent of EU respondents selected between a one and three (on a scale of one to five). The majority of CFOs (70% of U.S. CFO and 71% of EU CFOs) stated that their level of concern remained unchanged from last quarter.
  • Interest Rates: CFOs differ by region with regard to their anticipation around interest rates.  Sixty-four percent of U.S. CFO expect interest rates to be higher six months from now and 83 percent of U.S. CFO expect it will be higher a year from now.  Fewer European CFOs expect interest rates to be higher six months from now (29%) and a year from now (39%).  When asked to state their level of concern toward interest rates over the next 12 months, (on a scale of one to five), CFOs also didn’t seem to be overwhelmingly alarmed this quarter: 84 percent of U.S. CFOs and 77 percent of European CFOs selected a three or lower. In the U.S., 57 percent of respondents consider the Federal Reserve’s monetary policy will be inflationary if maintained through 2014, compared to 27 percent who did not. However, 57 percent of U.S. CFOs did not believe that the Federal Reserve’s monetary policy is currently stimulating economic growth.
  • Cyprus: While the Eurozone remains a concern for CFOs, they are seemingly less concerned about Cyprus specifically. When asked about the future impact, 43 percent of European CFOs and 35 percent of U.S. believe that there will be little impact because Cyprus is a very small economy. A smaller percentage believe that the capital controls, which are part of the Cyprus bailout, would either weaken the Euro as a global exchange currency (38% in the EU, 29% in the U.S.), set a bad precedent which will undermine the flow of capital within the Eurozone (29.7% in the EU; 42 in the U.S.) or significantly diminish the use of Cyprus as an offshore financial center for Russia and other countries (27% in the EU; 39% in the U.S.).
  • Wage Levels: There were some noticeable differences in CFO perceptions on wage levels by region. The majority of U.S. CFOs believe that wage levels are rising compared with the same time last year (56%), and 41 percent believe that wage levels are about the same. Conversely, nearly three quarters of EU CFOs believe that wage levels have remained the same (73%), and only 19 percent believe these levels are rising.
  • Remote Working Policies: With much discussion over remote capabilities and protocol for employees, respondents revealed that it has not impacted in their views toward work culture at their companies.  The majority of U.S. CFOs (57%) and nearly half (49%) of EU respondents are not seeing a trend towards less flexibility in regard to remote working capabilities for employees, versus 29 percent of CFOs in both regions that felt the paradigm was moving in this direction. This quarter’s respondents, many of whom are from companies that do not require a remote work location, largely plan to retain their existing policies on working remotely (81% of U.S. CFOs; 53% of EU CFOs).  However, 42 percent of EU respondents and 13 percent of U.S. respondents have plans to enact a more flexible policy.
  • Outsourcing: With regard to their position on outsourcing some finance and accounting activities within their company, the large majority of CFOs (68% in the U.S.; 61% in the EU) had no plans to outsource, and less than a tenth of those respondents (7% in the U.S.; 9% in the EU) were outsourcing these functions outside of their home country.
  • Cybersecurity: This quarter, U.S. CFOs were most commonly impacted by cybersecurity issues stemming from cost increases for cybersecurity investment and preventative measures (58%). However, U.S. respondents were split on their views on what the role of the U.S. government should be in helping companies deal with these issues – nearly a third (31%) believe the government’s level of involvement should be determined on a case by case basis, while 29 percent felt that the government should never get involved.  The most favorable actions by the government include increased education (25%) and the provision of tax breaks and liability protection for companies that are investing in these issues (17%).

Results are also available from a sample (37) of CFOs from Mexico.  Mexican CFOs’ optimism toward the global economy stood at 61 for the first quarter, which was a slight decrease from where it stood the same time last year (62.3 in Q1 2012). Their confidence in the U.S. economy experienced a seven-point drop from one year ago (down to 64.7 from 71.8 in 2012), while confidence in their company’s business prospects increased slightly to 76.4 (from 74.9 in 2012).  Over the next 12 months, Mexican respondents expect double digit increases in the areas of capital spending (16%), revenue and technology spending (both 13%). They are also directing investments toward expansion of production capability (51%) and making their businesses more environmentally sustainable (41%). In terms of hiring, 47 percent plan to hire during the next six months, whereas 44 percent have no plans to hire. CFOs in the region also felt that wage levels were rising (56%) compared with the same time last year. While they shared a slightly lower concern regarding inflation and interest rates compared to CFOs from other regions, they were more alarmed about the fate of the Eurozone – 61 percent selected a four or five to gauge their concern (on a one to five scale).

Full survey results and historical data comparisons are available at or from Nicole Madison The study is also available online at the Financial Executives Research Foundationbookstore and on the Baruch College home page at

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 154 corporate CFOs from the United States and 86 corporate CFOs from Italy andFrance electronically from April 18th – May 5th. 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);Italy survey respondents are members of Associazione Nazionale Direttori Amministrativi E Finanziari (ANDAF) and Mexico survey respondents are from the Instituto Mexicano de Ejecutivos de Finanzas (IMEF). Financial Executives International has been conducting surveys gauging the country’s economic outlook from the perspective of CFOs for more than 12 years.

About FEI
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 86 chapters, 74 in the U.S., 11 inCanada and 1 in Japan. FEI is headquartered in Morristown, NJ, with additional offices in Washington, D.C. and Toronto. for more information.

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 and CFOs. For more information,

All opinions expressed on USDR are those of the author and not necessarily those of US Daily Review.

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