Chief financial officers at U.S. companies are less confident about the prospects for U.S. economic expansion in 2012, although many plan to stay the course in terms of hiring and investment, survey findings show.
With major concerns about the ongoing European sovereign debt crisis, domestic deficit problems and a likely Supreme Court ruling on health care reform, chief financial officers (CFOs) in United States’ companies have become more pessimistic about the potential for economic growth in 2012 than in previous years. Nevertheless, many CFOs plan to forge ahead with their plans to invest in their own businesses and improve operational performance.
According to the Bank of America Merrill Lynch 2012 CFO Outlook survey, CFOs gave the current U.S. economy an average score of 44 out of 100, down from 47 last year. Moreover, only 38 percent of financial executives expect the U.S. economy to expand in 2012, down considerably from 56 percent in 2011, as “the burgeoning optimism from early 2011 has ebbed on several important fronts.”
The CFO Outlook survey is an annual report based on responses from 600 CFOs, finance directors and other executives selected randomly from U.S. companies with annual revenues between $20 million and $2 billion.
There are a range of concerns causing CFOs to feel less confident about the state of the nation’s economy in 2012. During this election year, policy concerns remain the top issue, with 70 percent of CFOs voicing doubt about the effectiveness of government leaders and 63 percent citing worries about resolving the U.S. budget deficit. Sixty percent of respondents cited health care costs as their top concern in 2012, while 58 percent cited unemployment levels, 55 percent cited consumer confidence and 45 percent cited global market unrest.
These economic issues are also expected to downgrade the prospects for individual businesses, as 41 percent of companies forecast profit margin growth this year, compared with 55 percent who expected to be more profitable in 2011. Fifteen percent expect profits to decline in the year ahead.
“[L]ike many Americans, CFOs are showing heightened concern about a broad range of more general factors that could affect the U.S. economy [in 2012],” CFOworld notes. “When asked about financial concerns specific to their own companies, 56 percent of CFOs chose health care costs. That was followed by energy costs and consumer confidence, both at 43 percent; cash flow at 42 percent; and revenue growth at 40 percent.”
Despite their pessimism on a number of key issues, most CFOs don’t expect their companies to reduce their workforce levels in 2012. While 7 percent forecast layoffs in the next 12 months, 46 percent said they expect to hire new employees in 2012 and 48 percent expect staff levels to remain the same as last year.
The outlook for certain industries also remains strong. CFOs rate the current state of manufacturing at 50 out of 100, up from 48 last year, while the services sector is rated at 56, roughly the same as in 2011. Fifty-one percent of manufacturing CFOs expect to hire staff in 2012, compared with 43 percent in the services sector.
“Without question, many CFOs are hoping for more positive signs of consistent economic stability and growth — in the U.S. and abroad,” Laura Whitley, head of global commercial banking at Bank of America Merrill Lynch, said in an announcement of the findings. “While they remain cautious, it is encouraging to see that reservations about the economy won’t translate to reductions in the overall workforce, and that CFOs are staying the course while waiting for the economy to improve.”
Economic uncertainty is not expected to damage business investments in innovation, as 60 percent of companies reported that their 2012 research and development (R&D) spending will remain comparable to pre-recession levels, 16 percent expect to increase R&D spending and only 11 percent said R&D budgets will be cut.
On another positive note, more executives are saying they have greater access to credit. Thirty-six percent of CFOs reported that lenders have increased credit availability to their companies, up from 28 percent who said the same in 2011. In addition, only 21 percent of CFOs expect the cost of capital to increase in 2012, down from 28 percent last year.
2012 CFO Outlook — Executive Summary
Bank of America Merrill Lynch, December 2011
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