Chief financial officers in the U.S. and Europe are largely optimistic about sales and earnings for their individual companies through the rest of the year, but rising commodity prices and extreme volatility in the equities markets has most convinced inflation is on the rise and will likely hinder any substantial recovery in the overall economy.
The CFO Outlook survey, conducted last month by Financial Executives International and Baruch College’s Zicklin School of Business, interviewed 228 corporate CFOs based in the U.S., 78 corporate CFOs from Italy and 44 CFOs from France.
The survey found that while U.S. CFOs are slightly more optimistic than their European counterparts, concerns about the impact of raising the debt ceiling and the possibility of a double-dip recession are prompting most to extend their forecasts for the start of a U.S. economic recovery by more than a year to the second half of 2012 or beyond.
The second quarter CFO Optimism Index for the global economy experienced a decline for U.S. CFOs from the previous quarter (61.70 to 59.40 in Q2), but remained higher than European CFOs, which also dipped (58.90 to 55.10 in Q2). U.S. CFOs’ optimism in their own companies remained consistent with the previous quarter (72), and demonstrated a higher level of confidence in their businesses than did European CFOs (down to 63.20 from Q1’s 66.10). However, the confidence among U.S. CFOs in the U.S. economy weakened. The index dropped five points from the previous quarter (59.00 from Q1’s 64.10) and dropped below their optimism for the global economy.
Over the next 12 months, U.S. CFOs are forecasting a 21% increase in their net earnings, an 11% increase in revenue and a 15% increase in capital spending, while CFOs in Europe anticipate more modest increases in revenue and net earnings (6% each) and only a 4% increase in capital spending.
"Globally, CFOs continue to display caution. Inflation concerns and fears about the recovery may further delay new hiring and investing," John Elliott, Dean of the Zicklin School of Business at Baruch College, said in the report. "While U.S. CFOs have high expectations for earnings growth and generally hold a more positive outlook than Europeans about the global economy and the future of their businesses, their declining confidence in the U.S. economy reflects uncertainly."
"Decisions from Congressional leadership and the President will be especially significant for U.S. businesses in the coming months," he added.
Mainly due to rising commodity prices, inflation levels continue to be a major area of concern for CFOs. When asked to rate their inflation concerns on a scale of one to five (with five being the highest level of concern), 70% of U.S. CFOs and 66% of European CFOs selected a three or higher. The report found that while more than half feel their level of concern was unchanged from last quarter, over a third of both U.S. CFOs (39%) and European CFOs (36%) expressed more concern this quarter.
From a big-picture perspective, the survey discovered that because of these formidable macroeconomic obstacles, a relatively lower number of U.S. CFOs feel the U.S. is in the midst of, or drawing close to, a recovery. Twenty-seven percent of U.S. CFOs believe that a recovery has occurred, and more than half (55%) predict that a recovery will not take place until the second half of 2012 or beyond.
For nearly half of U.S. CFOs (47%), a lowered U.S. unemployment rate was perceived to be the most telling indicator of an economic recovery, which is followed by a rising gross domestic product (GDP) (22%) and a rise in consumer spending (17%).