CFOs Gloomy About 2010, Survey FindsNanette Byrnes
A week ago the news on the economy was upbeat, with consumer sentiment remarkably higher in one measure. Today, some CFOs are throwing cold water on that good news. The quarterly survey of chief financial officers conducted by Duke University and CFO magazine shows the country's climb back to economic health is expected to be slow. For workers out of a job, they give little hope for a rebound in 2010. The results, released Dec. 16, contrast sharply with the surprisingly big jump in the University of Michigan's preliminary index of consumer confidence, which came out Dec. 11. With their hands on the corporate checkbook, CFOs' attitudes are important. Not only do they make the spending decisions, but they know the budget for the coming year. The Michigan study is a widely followed indicator of how the average American is feeling, and it rose last Friday from 67.4 in November to 73.4 in December, hitting a two-year high, though still trailing historical figures. And that's not the only relatively upbeat news in recent days: Unemployment last month came in lower than expected. But over its 13-year history, the CFO survey has proved superior to the Michigan review as an indicator of certain things, particularly what will happen to job growth and capital spending over the next 12 months, says co-author John Graham, a professor of finance at Duke. His study concluded Dec. 11 and has input from 1,431 chief financial officers across the U.S., Europe, and Asia, in a variety of industries and from both public and private companies. Workforce ReductionsThe broad findings are that while the worst is likely behind us, and many companies plan to boost their capital investments in 2010, that won't translate to more jobs or improvements for workers. U.S. executives expect to reduce their domestic workforce by 1.6% next year. In Europe, CFOs are expecting a 2.6% headcount reduction. Few think they'll be back to pre-recession staffing levels before 2011, or later. Those who have cut wages, 401(k) matches, and other benefits to weather the storm don't expect to restore them in the coming year, either. "It's all about running a tight ship and cutting costs," Graham says. "Rather than sell a plant, they're more likely to cut a shift." CFOs don't relish further staffing reductions. Nearly half of the U.S. executives said they have made cuts that they expect will do permanent damage to their long-term prospects, the most damaging of all being deep reductions in their workforce. Coming in second were cuts to training and professional development. Across the board, American CFOs were more pessimistic than finance executives outside the U.S., though their moods have improved slightly since last quarter. They predict an earnings rise of more than 7% and for capital spending to rise 2%, an improvement over recent predictions but still well below historical norms. "Real Doubts"Tony Aukett, CFO of privately held Continental Paper Grading, a Chicago-based trader of all kinds of paper products, is pretty concerned about the new year. Salary freezes and bonus cuts put in place to get through a tough 2009 will stay in force for the foreseeable future, and though Aukett hasn't had to fire anyone yet, he isn't looking to hire, either. Continental Paper's revenue is down 50% year over year, and earnings have dropped by 80%. "There are some real doubts on 2010," says Aukett. December has been slow this year. With the printing boost of the holiday season now over, he says, "What's going to happen come January, February, March, who knows?" Duke's Graham believes that loosening up lending, particularly to small companies, is the key to a rebound in both CFO confidence and the economy. While nearly 40% of Asian corporate CFOs surveyed said banks are more willing to lend today relative to the summer of 2008, only 12% of their U.S. counterparts agreed. Brian R. Schaefgen, CFO for Norfolk (Va.)-based Harbor Group International, a real estate investment firm, says that although he's used the same banks for years, he's operating under a much more onerous process than ever before: Approvals on deal financing take longer, lenders demand more disclosure, and loans are more expensive. "We've been put through the wringer by our banks," says Schaefgen, though he is now able to get credit from his lenders, an improvement from 12 months ago when "they wouldn't even talk to us." Small-company CFOs have the least access to capital, according to the report, though they are the ones who told the survey they'll hire next year. Firms with more than $1 billion in sales will be cutting jobs.