Almost unnoticed, the economic expansion reached the ripe old age of 40 months this month—at least according to the National Bureau of Economic Research, which is the official arbiter of such periods. Before the anomaly of the 1990s, the average length of a period of recovery was just 35 months before things went south again. That means the expansion could already be living on borrowed time.
Indeed, CFOs are concerned that the economic party could be coming to an end, even before most people have realized it had begun. According to the Duke University/CFO magazine Business Outlook Survey, CFOs are less optimistic about the economy than they have been in more than two years. Just 46 percent of respondents say they are more optimistic than they were last quarter, down from 54 percent when the survey was conducted in December, continuing a downward trend. And 36 percent say their outlook is declining, up from last quarter, when only 21 percent of CFOs held negative views of the economy. That's not to say that they are ready to pronounce the expansion dead, but the results certainly indicate concern about its longevity.
The causes for this less-than-rosy outlook seem to be rising labor costs, high fuel costs, and rising interest rates. CFOs are also worried about the depreciating dollar and the U.S. budget deficit.
While CFOs were anxious about the U.S. economy overall, they continue to expect good results from their own companies. More than half say they are more optimistic about the financial prospects of their own companies compared with last quarter. In fact, 87 percent of public-company respondents say they expect to increase earnings over the next 12 months, and 84 percent expect to grow revenues during that time frame. However, they are lowering their expectations for how much those numbers will improve. Earnings targets over the next year among respondents declined from 13 percent last September to 10 percent. But those goals are still lofty. And if they materialize, CFOs will likely have much better things to say about the overall economy in the next year. One bright spot: CFOs say they will increase capital spending in the next 12 months an average of 5 percent, up from the 4 percent predicted last quarter.
In Europe, CFOs have mixed feelings about the long-term prospects for the local economy. More than 43 percent have no change in their opinion of the economy from last quarter, while 38 percent are more optimistic about the European economy and 19 percent hold a pessimistic view. In Asia, the sentiment is more hopeful. Almost 70 percent say they feel better about the economy than they did a quarter ago, and just 12 percent say they feel worse. Confidence in Asia is improving despite weakness in the U.S. dollar, which makes their goods more expensive in the United States, an important market to nearly all Asian countries.
Surprisingly, CFOs here in the States are also concerned about the weakness in the dollar. Almost half (47 percent) of CFOs say the declining dollar will hurt their businesses, due to rising material costs. Another 27 percent report no effect. Health-care costs also continue to trouble CFOs. Respondents expect health-care expenditures to rise an average of 9 percent in the next 12 months, although that would be less than the double-digit increases companies have endured in the past few years.—J.McC.