The fragile economic recovery continues to influence chief financial officers’ outlook, according to new findings that reveal industrial manufacturing CFOs’ top financial concerns of 2011.

Solid signs of economic recovery in United States manufacturing have chief financial officers (CFOs) more optimistic about the nation’s economy, as well as their hiring and capital expenditures in 2011, according to Prime Advantage’s latest annual Group CFO Survey (registration required). Nevertheless, a number of unknowns — both external and internal — pose key challenges for finance executives in small and midsized industrial manufacturing firms.

Overall, 74 percent of CFOs are more optimistic about the economy, up from 67 percent last year. These results are significantly more positive than those of Bank of America’s CFO Outlook 2011 survey, which indicates that only 45 percent of manufacturing CFOs forecast sector expansion.

An overwhelming majority (67 percent) are also more optimistic about their firms’ 2011 financial prospects, up from 64 percent last year and more positive than the respondents in the latest Duke University/CFO Magazine survey, who are 56 percent more optimistic.

Nearly all respondents are planning significant capital expenditures in 2011, with 88 percent saying they intend to invest in manufacturing equipment this year, while 56 percent plan to buy computer hardware. In addition, 74 percent say the ability to use business investment tax credits is accelerating plans to invest in manufacturing equipment.

Naturally, the fragile economic recovery continues to influence CFOs’ outlook. For example, 86 percent of CFOs say customers are at least somewhat affected by the cost or availability of credit, although 45 percent say borrowing conditions have improved since 2010.

The industrial buying consortium’s findings reveal the top financial concerns of its member companies’ CFOs in 2011.

Top External Concerns: Customer Demand, Commodity Costs and Price Pressure
Although U.S. manufacturing expanded for the 19th consecutive month in February, according to the Institute for Supply Management’s latest manufacturing Report on Business, “uncertainty about customer demand remains the top external concern among 48 percent of respondents and in the top three concerns for 82 percent of respondents,” Prime Advantage notes in an announcement of its findings. However, these levels are down from 61 percent and 80 percent in 2010 and 76 percent and 93 percent in 2009, respectively.

Seventy-three percent of respondents cite concern over non-fuel commodities costs, up from 27 percent last year; with 30 percent ranking it as the top concern.

Fifty-five percent of Prime Advantage’s respondents cite price pressure as a top concern in 2011, down from 70 percent in 2010.

In the latest Duke University/CFO Magazine survey, also released this month, weak consumer demand, price pressures from competition and costs of non-fuel commodities were cited as the top external concerns.

Top Internal Concerns: Medical Insurance, Maintaining Margins and Talent
In the latest findings, medical insurance premiums became the top internal concern for 33 percent of respondents, with 67 percent citing it in the top three. Premiums increased for all respondents in 2010, with 48 percent experiencing cost increases of 11 percent or more. The survey results show that 76 percent of CFOs saw health care premiums increase between 5 percent and 25 percent last year.

Meanwhile, 52 percent of CFOs place the ability to “maintain margins” among their top three internal concerns and 30 percent cite it as the No. 1 concern. Respondents to this month’s Duke University/CFO Magazine survey also cited the ability to maintain margins as a top internal concern.

While all CFOs plan to increase or at least maintain the size of their workforce — with 72 percent expecting to hire in 2011 — a shortage of skilled labor is creating concern, with 23 percent of CFOs reporting difficulties filling open positions. Bank of America’s survey showed less optimism in this area, with 46 percent of manufacturing CFOs expecting to increase hiring in 2011. Moreover, both “attracting and retaining qualified employees” and “maintaining morale/productivity” are cited in 42 percent of Prime Advantage’s findings.

Overall, 67 percent of respondents say ensuring a quick response to changing economic environments is their top priority, up from 52 percent last year, while 64 percent believe developing new products/services in response to changing consumption patterns is a top priority, compared with 55 percent in 2010. Cutting operational costs, a top priority in 2010, has fallen to third place, with 56 percent in agreement.

Prime Advantage conducted its latest Group CFO Survey (registration required) in January and February, surveying a cross section of finance leaders from the consortium’s member companies consisting of industrial manufacturing firms from various sectors.

Resources

2011 Group CFO Survey
Prime Advantage, March 2011

Small and Midsized Industrial Manufacturing CFOs Reveal their Top Concerns of 2011
Prime Advantage, March 18, 2011

Global Business Outlook Survey
Duke University/CFO Magazine, March 9, 2011

…Outlook Rosier, Some Sectors Hiring, but Inflation a Worry
Duke University/CFO Magazine, March 9, 2011

CFO Outlook 2011: Taking the Pulse of Corporate America
Bank of America Corp., February 2011