CFO survey: Outlook rosier, but inflation a worry

March 10, 2011 By Chris Privett

Chief financial officers in the U.S. have a more optimistic outlook about the economy, with robust growth expected in earnings and capital spending. Overall employment is expected to grow slowly, though some job categories are in strong demand. However, an uptick in inflation would pose notable risks for many firms.

These are some of the findings of the most recent Duke University/ Magazine Outlook Survey. The quarterly survey, which concluded March 3, asked 854 CFOs from a broad range of global public and private companies about their expectations for the economy. (See end of release for survey methodology.) The research has been conducted for 60 consecutive quarters, making it one of the world's most comprehensive and longest-running surveys of senior finance executives. Presented results are for U.S. firms unless otherwise noted.


-- CFO optimism has increased, rising to the highest level since early 2007.

-- Earnings growth (18 percent) and capital spending growth (12 percent) will be robust over the next year, according to CFOs.

-- Dividends will soar by 14 percent, the largest quarterly increase in the history of the survey.

-- Employment growth will be modest (1.2 percent) overall; however, some industries identify a need to hire skilled workers in engineering, product development, information technology, finance and accounting, and sales.

-- Inflation concerns have increased. CFOs who say an increase in inflation would affect their business estimate that inflation of 4 percent would cut earnings growth in half.

-- Overall, 39 percent of companies find borrowing conditions have improved compared to fall 2009. The smallest firms (revenue under $100 million) say credit is still tight.

CFOs are at their most optimistic since the first quarter of 2007, with 56 percent of U.S. CFOs saying their optimism has increased this quarter. By comparison, 39 percent of European CFOs say they are more optimistic, while 65 percent of Asian CFOs are more optimistic.

"Increasing optimism is good news for the U.S. economy going forward," said John Graham, professor of finance at Duke's Fuqua School of Business and director of the survey. "Historically, we have found that increases in optimism lead to stronger GDP growth, spending and employment within a year."

Earnings are expected to increase 18 percent in the U.S., effectively doubling the 9 percent jump expected in Asia and the 10 percent increase anticipated in Europe.

U.S. finance chiefs expect to step up capital expenditures by a robust 12 percent in 2011. "We have not seen double-digit capital spending growth since 2004," Graham said.

In addition, spending on research and development is projected to grow by 4 percent, and advertising by 4 percent. Still, half of U.S. companies say they will continue to accumulate cash on the balance sheet.

U.S. firms expect to increase their full-time workforces by just over 1 percent in 2011. Hiring will be strongest in the energy, transportation and retail/wholesale industries, while employment will decrease in construction and media. Employment is expected to rise by about 9 percent in Asia and decline by less than 1 percent in Europe.

"The U.S. employment picture is slowly improving," said Kate O'Sullivan, deputy editor at CFO Magazine. "The rate of improvement won't push unemployment much below 9 percent this year, but certain job categories are in high demand."

Among firms that are hiring, about one-third note a strong need to hire skilled labor and professionals this year: engineers, medical personnel, product developers, followed by IT, and finance and accounting staff. The industries with the greatest hiring needs for these jobs include manufacturing, mining and construction, and health care.

Salespeople are also in strong demand, with 27 percent of CFOs saying their firms need to expand their sales force this year. The strongest sales needs are in the retail/wholesale, tech and finance/banking/insurance industries. There is very little need for manual laborers, administrative support staff or human resources workers.

CFOs were also asked how long, if ever, it will be before their firms return to pre-recession employment levels: 37 percent of companies say they have already returned to pre-recession levels, while one in five firms says they will never return to previous employment levels. Another 43 percent say they will eventually return to pre-recession employment levels, but not until sales revenue increases by another 40 percent.

"This indicates it will take several years, at least, before most firms have returned to pre-recession staffing levels," O'Sullivan said. "Another concern is that small firms say borrowing conditions are still tight; nearly half say borrowing is more difficult now than it was at year-end 2009. Given that much employment growth comes from young, small firms, tight credit among these firms will continue to constrain employment."

U.S. companies expect prices of their products to increase by just over 2 percent during the next 12 months, indicating moderate price pressure in the near term. However, inflation has begun to worry CFOs. Fuel and commodity price inflation are among the top six corporate concerns. Exacerbating inflationary concerns, 76 percent of manufacturing firms expect that capacity utilization -- a measure of actual output versus potential output -- will increase during 2011 and only 4 percent expect a decrease. Overall, capacity utilization is expected to leap by 6 percentage points in 2011 to nearly 80 percent, up from last year's 73.5 percent and a level not seen since before the recession.

"Many of our surveyed firms have grave concerns about inflation," said Campbell Harvey, a professor of finance at Fuqua and founding director of the survey. "We asked these inflation- vulnerable firms what would happen to earnings growth if there were ‘surprise' inflation of 4 percent in 2011 compared to the current rate of 1.5 percent. If surges to a hypothetical 4 percent, CFOs report that earnings growth would be slashed by an astonishing 48 percent."

Thirty-six percent of U.S. companies say they will acquire another firm or part of another firm during the next year. M&A activity should be about the same in Asia, but even more robust in Europe, where 42 percent of firms plan to make acquisitions.

In the U.S., the most active industries for M&A will be tech, media, and service/consulting.

Optimism in Asia (not including China) is strong, with 65 percent of CFOs more optimistic than they were last quarter and 10 percent more pessimistic. The outlook is restrained in China, with optimists barely outnumbering pessimists 34 percent to 32 percent.

The top internal concern among Asian CFOs is difficulty in attracting and retaining qualified employees, with liquidity management, employee morale and difficulty in planning following close behind.

Full-time domestic employment is expected to increase by about 9 percent in Asia in 2011 and capital spending will rise by more than 15 percent.

European optimism trails the rest of the world, with 39 percent of CFOs being more optimistic than last quarter and 23 percent more pessimistic.

European concerns include intense pressure on profit margins, difficulty in planning due to economic uncertainty, difficulty in attracting skilled employees, employee morale, and corporate liquidity.

European CFOs are split on their assessment of credit conditions, with 30 percent saying borrowing is easier than it was in fall 2009 and 31 percent saying borrowing is more difficult.

Full-time domestic employment will decrease by 0.6 percent, while outsourced employment will increase 3 percent.

Two-thirds of European CFOs do not believe the European Financial Stability Facility is adequate to safeguard financial stability in Europe.

About three-fourths believe there is need for a Europe-wide bank oversight institution to oversee and regulate cross-border banks.

Explore further: CFO Survey: U.S. Economy Improving Slowly, But Not Surely

Related Stories

CFO survey: optimism tumbles, employment picture bleak

September 17, 2010

Optimism about the U.S. economy has fallen back to recession levels among chief financial officers, who foresee minimal increases in hiring, weak consumer demand and heightened economic uncertainty, finds a Duke/CFO Magazine ...

CFO Survey: Historic Recession to Last Another Year

December 10, 2008

( -- Chief financial officers in the United States and around the world are more pessimistic than at any time in the history of the Duke University/CFO Magazine Global Business Outlook Survey. The majority of ...

Slash in corporate investment creating long-term problems

February 3, 2009

A deep and lingering credit crisis is throttling investment in moneymaking projects that could help jump-start a U.S. economy mired in its worst downturn in decades, a new survey of corporate executives shows.

Marketer optimism rises to highest level in two years

February 16, 2011

Top marketing executives at U.S. firms are more optimistic about the U.S. economy and their own companies, with company performance indicators such as revenue, profits and new jobs climbing across the board.

Recommended for you

New paper answers causation conundrum

November 17, 2017

In a new paper published in a special issue of the Philosophical Transactions of the Royal Society A, SFI Professor Jessica Flack offers a practical answer to one of the most significant, and most confused questions in evolutionary ...

Chance discovery of forgotten 1960s 'preprint' experiment

November 16, 2017

For years, scientists have complained that it can take months or even years for a scientific discovery to be published, because of the slowness of peer review. To cut through this problem, researchers in physics and mathematics ...


Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.