CFOs Reveal How Economic Concerns Are Impacting Their Businesses
FLORHAM PARK, N.J., and NEW YORK — As many in the industry are aware, a big part of consumers' buyer power is tied up with their salaries and the health of the companies they work for.
To take a glimpse into just how companies are faring, two organizations recently surveyed chief financial officers throughout the country to get their input on how they think the economy is faring, along with taking a look at their businesses' performance
The study found that recession concerns in the U.S. are affecting their companies' budgets, spending and hiring. The survey was completed by Financial Executives International and Baruch College's Zicklin School of Business.
The economic downturn and weakness of the U.S. dollar continue to impact businesses in the U.S., according to the report.
While more than one third of CFOs (34 percent) indicated that the weakness of the U.S. dollar has led to increased international sales, more than half (51 percent) said they have seen an increase in the costs of commodities/raw materials. Moreover, one third (33 percent) said their quarterly earnings have decreased.
When asked what their view was of a potential recession in the U.S. in the current year? The study discovered that 41 percent of the CFOs said they believe the U.S. is currently in a recession, while an additional 32 percent believe the U.S. will likely go into a recession within the next six months.
Only 18 percent responded that they did not believe the U.S. would go into a recession at all in 2008.
"What we are hearing from CFOs is, recession or not, they are taking defensive measures to combat the economic slowdown." said John Elliott, dean of the Zicklin School of Business at Baruch College.
"This quarter's survey revealed that almost half of the CFOs are in agreement with U.S. economists and believe we are currently in a recession," he added.
Continuing on, the report indicated that the CFO Optimism Index for the U.S. economy came in at 54.29 for this quarter, dropping even further past last quarter's three-year low of 56.26.
Thirty-four percent of the CFOs surveyed said that, during the first quarter of this year, they had delayed the implementation of business-related spending due to recession concerns.
CFOs' outlook toward their own companies decreased again this quarter, as the Optimism Index of the CFOs' own companies sank to 68.12, falling 2.1 points lower than last quarter, which itself was a three-year low.
"This quarter's data points to a continued decline in optimism among CFOs," said Michael Cangemi, FEI president and chief executive officer. "With the permeation of pessimism, the survey revealed two-thirds of companies identifying some type of cutbacks, specifically in the areas of layoffs and reduced hiring. It is now more important than ever for CFOs to identify efficiencies and conduct smart business."
In response to the current economic downturn, 46 percent of the CFOs surveyed identified hiring as an area for cutbacks. Nearly a quarter (24 percent) selected conducting layoffs when asked the same question.
Interestingly enough, a similar number (23 percent) of CFOs surveyed said they had actually increased their marketing/advertising budget as a response to the economic downturn.
Another topic tackled was ratings' agencies. CFOs surveyed support changing the ratings agency process. Thirty-five percent of CFOs said ratings agencies should create a new rating scale.
Nineteen percent recommended the addition of warning labels to the agencies' ratings, with close to half of respondents (46 percent) stating that they would have more confidence in the ratings if the agencies changed their process to include these warnings and provide better distinctions for structured finance ratings.
When asked about the economic stimulus bill, only 12 percent of CFOs said they would increase equipment purchases to take advantage of the bill, which allows business accelerated depreciation tax breaks on equipment purchased and placed into service in 2008.