Four pessimists for every optimist among US chief financial officers

There are four pessimists for every optimist in a survey of 937 chief financial officers published today who were asked for their view on the economy over the next few months. The survey follows reports that insider share sales out number purchases by a factor of 1,400.

The study was conducted by Duke University’s Fuqua School of Business, in collaboration with CFO Magazine and Tilburg University in the Netherlands. US based CFOs have the least optimism about economic conditions with a rating of 49 on a zero-to-100 scale.

Rising pessimism

Pessimists outnumber optimists four-to-one. However, optimism by European CFOs was rated 58 while Asian CFOs had the highest at 70.

‘The CFO optimism index has proven to be an accurate predictor of future economic performance,’ said Julia Homer, executive vice president for content at CFO Publishing. ‘Therefore, this dramatic drop in optimism bodes poorly for the US economic outlook.

‘Half of CFOs say there is only a six-month window during which they can maintain current levels of business activity without improvement in the overall economy; another one-fourth believe it’s a 12-month window.’

In addition to declining optimism, employment in the US is expected to be almost stagnant with companies expecting full-time domestic employment to inch up by only 0.7 per cent over the next year.

Temporary employment is forecast to grow by 0.8 per cent. The employment picture is about the same in Europe, but much positive in Asia – with expected growth of more than five per cent.

‘This rate of U.S. employment growth will increase payrolls, but not put a dent in the unemployment rate due to growth in labor force participation,’ Homer said. ‘Another negative employment trend is the recent surge in hiring contract and temporary employees rather than permanent workers.’

Credit challenges

Credit conditions were also shown to be a significant challenge to CFO’s as 30 per cent of companies surveyed say borrowing has become more difficult. Half of the US CFOs surveyed say they will cling tightly to cash due to economic uncertainty, and as a liquidity buffer, while the other half will spend some cash reserves in the next year, primarily on investment, to pay down debt and to make acquisitions.

However, Asian CFO’s do not intend to hold too tightly to cash unlike their European US counterparts; about 70 per cent of Asian companies expect to unleash cash reserves on capital spending, research and development, as well as increase employee pay and benefits over the next year. The transfer of wealth from West to East continues as CFOs watch.