CFOs Less Optimistic About Economy, Growth

Financial executives at U.S. companies remain concerned about the current economy and are less confident about economic growth in 2012, according to the latest Bank of America Merrill Lynch CFO Outlook survey. Laura Whitley, Bank of America Merrill Lynch Of the 600 executives at U.

Financial executives at U.S. companies remain concerned about the current economy and are less confident about economic growth in 2012, according to the latest Bank of America Merrill Lynch CFO Outlook survey.

Laura Whitley, Bank of America Merrill Lynch

Of the 600 executives at U.S. companies who were surveyed in the annual report, only 38 percent said they expect the U.S. economy to expand in 2012, down from 56 percent in last year’s survey and 66 percent the previous year. Regarding the current economy, optimism earlier this year has ebbed, with CFOs now giving the economy a score of 44 out of 100, down from last year’s score of 47 and equal to the lowest score in the survey’s 14-year history.

Despite those concerns, most CFOs don’t expect their companies to reduce workforces in 2012. Only 7 percent predicted layoffs, compared with 6 percent last year. Meanwhile, 48 percent of executives said they expect their companies to maintain the current number of employees, while 46 percent said they expected to hire employees. Both of those responses are similar to last year’s survey.

“Without question, many CFOs are hoping for more positive signs of consistent economic stability and growth – in the U.S. and abroad,” said Laura Whitley, head of Global Commercial Banking at Bank of America Merrill Lynch. “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.”

Another reassuring sign amid challenging economic conditions: More CFOs this year say that more credit is available, and fewer CFOs say they expect the cost of capital to increase in 2012. When asked if their lenders have increased the credit available to their companies, 36 percent of executives said yes, up from 28 percent last year. In addition, only 21 percent of CFOs said they expect their cost of capital to increase, down from 27 percent last year.

“These responses support what we’ve heard from many Bank of America Merrill Lynch clients,” Whitley said. “Those companies that are considering additional capital feel confident that we can provide financing – and at an affordable rate – as needed.”

Other notable findings in the survey:

  • CFOs are strongly concerned about several factors that could affect the economy in 2012. No. 1 was the effectiveness of U.S. government leaders, listed as a concern by 70 percent of executives. In addition, 63 percent listed the U.S. budget deficit, 60 percent listed healthcare costs, 58 percent listed unemployment, and 55 percent listed consumer confidence. Never in the history of the CFO Outlook have there been so many factors at a high level of concern. Last year’s top concern regarding the economy was healthcare reform, chosen by 54 percent of executives.
  • The top financial concern for their own companies was healthcare costs, chosen by 56 percent of CFOs. That was followed by energy costs and consumer confidence, both at 43 percent; cash flow at 42 percent; and revenue growth at 40 percent.
  • Regarding revenues, 56 percent of CFOs expect growth, down from 64 percent last year.
  • Similarly, 41 percent of CFOs anticipate a growth in profit margin, down from 55 percent last year.
  • Only 18 percent of CFOs expect to participate in a merger or acquisition next year, down from 26 percent a year ago.
  • Despite economic uncertainties, there haven’t been widespread cuts to research and development. More than three-fourths of CFOs said their R&D expenses were the same or higher than pre-recession levels, similar to last year’s response.

Conducted by Granite Research Consulting, the CFO Outlook helps Bank of America Merrill Lynch better understand how financial executives view the economy. The results were compiled from phone interviews of 600 CFOs, finance directors and other executives selected randomly from U.S. companies with annual revenues between $20 million and $2 billion.

Interviews were conducted from late September to early November. The margin of error is +/-4%. The full report will be available early next year at www.bankofamerica.com/cfooutlook. 

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