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Forecast: Breaking Clouds, Some Sun

Finance chiefs say profits up next quarter; even more upbeat about long-term prospects.

4Jun

CFOs are expecting brighter skies in the near future. With the fallout from Enron finally starting to diminish, first-quarter growth coming in at a robust 5.8 percent annual rate, and with productivity climbing, finance chiefs find reason to believe that the economy is poised for a sustained recovery. Indeed, CFOs are more confident in the short-term prospects of the U.S. economy than they have been in more than a year, according to our quarterly Global Confidence Survey of U.S. CFOs.

A full 46 percent of finance executives polled say their attitude toward the domestic economy is either confident or very optimistic, up from 33 percent in the last quarter. Respondents are basing the rosy outlook on expectations of healthy gains in profits and revenues at their own companies. Nearly 43 percent say they expect next quarter's profits to beat those of the same period last year by more than 10 percent, and the same number predict revenues will jump by more than 10 percent. Another 26 percent expect profits to grow, but at less than 10 percent.

If CFOs are hopeful for a rebound in the U.S. economy during the next year, they are even more sanguine about a resurgence in the next five years. In fact, 33 percent say they are very optimistic about the economy in the long term, compared with only 20 percent last quarter. Another 57 percent are confident, and only 9 percent say they have a neutral attitude about the long-term economy.

The economic recovery still has its naysayers, however. A modest 19 percent of respondents say they are concerned about the U.S. economy--an increase from 16 percent last quarter. To be sure, concerns about unemployment, tech spending, and fuel costs linger. And economists were quick to point out that more than half of the first-quarter growth came from businesses replenishing their inventories. Even more cautionary is the survey's finding that more CFOs plan to reduce capital spending next quarter--33 percent said they would make cuts, compared with 20 percent the last time the poll was taken. Capital spending plans for the fiscal year are much brighter; 63 percent plan to increase spending, compared with 40 percent in the last survey.

While survey respondents were encouraged by the economy in general, they still listed the economic downturn as one of their top three business concerns. Apparently, they're thinking, "It ain't over till it's over." Other high-ranking concerns include access to capital and increased competition. Despite relatively high unemployment, one in three surveyed cited attracting and retaining employees as a chief concern.

CFOs are also less optimistic when it comes to the global economy. Indeed, 26 percent say they are concerned about the global economy during the next year, and 48 percent say they are neutral. Again, they feel better about the long term, with 67 percent indicating that they are confident or very optimistic. -- J.McC.

A full 46 percent of finance executives polled say their attitude toward the domestic economy is either confident or very optimistic.


CFO

Global Confidence Survey Results

Attitudes of U.S. CFOs in the next year:
 Domestic economyGlobal economy
Very optimistic7%n/a
Confident39%33%
Neutral35%41%
Concerned19%26%
Very pessimisticn/an/a
Attitudes of U.S. CFOs in the next five years:
 Domestic economyGlobal economy
Very optimistic33%19%
Confident57%48%
Neutral9%26%
Concernedn/a7%
Very pessimisticn/an/a
Next quarter's performance predictions:
 ProfitRevenue
Increase69%67%
Decrease20%20%
No change11%13%
Capital Spending projections for next:
 QuarterFiscal year
Increase35%63%
Decrease33%26%
No change32%11%

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