Rest assured, another Great Depression is not on the way. That's because it's already here — at least as an accurate description of the psychological state of most finance executives.
In fact, even before the latest round of bad news from Wall Street, CFOs were anxious about sputtering consumer demand and stalled credit markets, along with the continued volatility in the cost of fuel and other commodities, according to the most recent Duke University/CFO Global Business Outlook Survey. Those worries have only deepened as the fallout from the housing-market downturn and the credit crunch continues to sink in.
"I worry about the psychology created by the market turmoil. The events dominating the headlines can impact your thinking very negatively," says Jerry Plappert, vice president of finance at Fisher-Klosterman, a Louisville-based engineering and manufacturing company that serves the oil and utilities markets. "If you have a customer who's planning a project, he or she could get nervous and decide to delay for six months to see what happens." While Plappert's business has remained strong in recent months, he says the company is monitoring its customers' payments more carefully than ever.
Finance executives completed this quarter's survey before the implosion of Lehman Brothers and the subsequent Wall Street meltdown. But fears about the credit markets and interest rates were already top of mind for CFOs. They worry not that capital will cost too much — even though those who have been affected by the crunch report an increase of 102 basis points on average since summer 2007 — but that they won't be able to access credit at any price. "It's cheap money today by historical standards, but can you get it?" wonders Plappert. Chris Johns, CFO and treasurer at California utility PG&E, notes, "The market reaction doesn't distinguish between higher- and lower-quality credit companies."
Other finance chiefs echo Plappert's concern about the difficulties of planning in a volatile market, ranking the ability to forecast as their number-two concern about their own firms. Finding and retaining talent continues to be CFOs' top internal problem, although that anxiety may ease in the coming quarter as the ranks of the unemployed will likely grow. More than 60 percent of firms directly hit by the credit crunch plan to delay, reduce, or cancel hiring plans. Great, no. Depressing, yes.