September 20, 2004—CFOs of US corporations are markedly less optimistic about the US economy than they were three months ago, and are concerned about consumer spending, health care costs, and domestic terrorism, reports the latest Duke University CFO Outlook Survey. Financial executives are not, however, overly concerned about the upcoming presidential and congressional elections, and few companies have taken action in response to rising fuel costs.
The Outlook Survey, conducted for 34 consecutive quarters, asks chief financial officers from both public and private companies and from a broad range of industries and revenue levels about their economic projections. The current survey, completed September 13, received responses from 201 executives representing the retail/wholesale, mining/construction, manufacturing, transportation/energy, communications/media, technology, and banking/finance/insurance industries.
The survey asked executives to choose the top three risks, from a list of 13, that could affect their companies in the coming year. Nearly 60% of the CFOs listed the potential for weak US economic growth as their number one risk. Consumer spending is another area of concern, with 38% of companies citing this among their top three concerns.
CFOs expect health care costs to rise by an average of 9% in the next 12 months. This rapid rate of increase earned health care costs the number three ranking of risks faced by US corporations, with one-third of corporations citing health costs as one of their top concerns.
Nearly 30% of financial executives cite domestic terrorism as one of the top risks facing their firm in the coming year.
In a series of follow-up questions, the survey probed to determine which types of terrorism would most affect corporations, and how companies would change hiring and capital spending if domestic terrorism were to occur. The CFOs said that corporate hiring and capital spending are far more sensitive to an attack on either the transportation or energy infrastructure than to an assassination or symbolic target, while an attack with weapons of mass destruction would obviously be the most devastating both humanly and economically.
Any reductions in capital spending would come on top of already weak corporate spending plans. In a separate question about general capital spending plans, US corporations are expected to increase spending only 4.7%.
Only one in four companies list the high price of oil as a major concern during the next 12 months. Furthermore, only about 14% of companies say they have implemented specific strategies to reduce their level of fuel consumption, such as switching to fuel-efficient vehicles or upgrading inefficient production facilities. Another 6% have taken exclusively financial actions, such as hedging against fuel-price increases or signing fixed-price fuel contracts.
In spite of all these risks and reduced optimism about the US economy, executives do not believe the sky has fallen. CFOs expect earnings to grow 13% in the next 12 months.
Offshore employment is expected to increase at 40% of all firms, with the average number of outsourced employees increasing by 6.4%.
Three in four companies expect to increase their technology spending in the next 12 months, with the increase averaging 5.8% across all firms.
Detailed results of this survey, as well as other outlook surveys, are available from Duke University.
