|Economic Optimism Drops as Risks Multiply for Corporate Sector|
|CFO Magazine – Press Release|
|June 07, 2006|
DURHAM, N.C. –- Chief financial officers are growing more pessimistic about the U.S. economy, but still plan to increase capital spending and hiring this year. Their expansion plans will be in substantial jeopardy, however, if inflation, the Federal Funds rate or the price of oil continues to rise.
These are some of the conclusions of the June 2006 Duke University/CFO Magazine Business Outlook survey, which asked CFOs from a broad range of global public and private companies about their expectations for the economy. The survey concluded June 1 and generated responses from 980 CFOs, including 584 from the U.S., 215 from Asia and 181 from Europe. The survey of European CFOs was conducted jointly with RSM Erasmus University in the Netherlands. Results in this release are for the U.S. firms, unless stated otherwise.
The study’s main findings are:
— Only 24 percent of CFOs are more optimistic about the U.S. economy, in contrast with 42 percent last quarter;
— 49 percent are more optimistic about their own companies, however, suggesting the pressures facing the economy have yet to affect most firms directly;
— Rising wages, falling consumer demand, and increased fuel costs top CFOs’ lists of concerns;
— CFOs say their bottom lines will suffer if core inflation rises to 3.5 percent, the Federal Funds rate goes above 5.5 percent, or if the price of oil surpasses $75 a barrel;
— Companies will increase capital spending 7.5 percent over the next 12 months, an increase from last quarter, when CFOs predicted a rise of 6.5 percent;
— Earnings are expected to increase 10.4 percent over the coming 12 months;
— Corporate cash balances will grow another 2.1 percent.