While good vibrations are in the air over the economy, according to a couple of recent surveys of business executives, the recovery may be a little late in arriving.
CFOs' optimism about the economy jumped to 54.2 in the third quarter, from 41.9 in the second quarter, according to the latest survey by Financial Executives International (FEI) and Baruch College. That's the highest reading on the optimism index since the first quarter of 2008. The finance chiefs were even more upbeat about their own companies' prospects; that index soared to 64.1 from the second quarter's 51.44, which was an all-time low.
"Their overall optimism about the economy and optimism about their own company's prospects improved very sharply from the prior quarter and more importantly, is back to levels we saw a year ago," says John Elliott, dean of Baruch's Zicklin School of Business. But Elliott notes that at the same time, CFOs cited a later starting date for the economic recovery than they had previously.
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Just 10.3% of the CFOs responding to the third-quarter survey say the U.S. economy has entered a recovery phase, down from the 18.1% who thought the recovery had started in the second quarter. And just 27.6% now expect the recovery to start in the first half of next year; down from 39.6% who were predicting that in the second quarter.
On average, the CFOs expect a 5.8% hike in their company's revenue over the next 12 months and a 10.9% surge in net earnings. Elliott says that while positive surprises on earnings over the past year often reflected cost reductions rather than revenue gains, "here what we're seeing is that they expect earnings to grow but it will be built on revenue growth, it's not just cost controls."
Despite that outlook on revenues, CFOs are still in inventory-trimming mode: on average, they expect to cut inventories 1.9% in the next 12 months, versus the 3.08% reduction they were forecasting in the second quarter. They see the price of their products inching up 0.7% over the next year, which contrasts with the .06% price decline they foresaw in the second-quarter survey.
Separately, an HSBC survey of small and midsized companies found executives are more upbeat about the outlook for trade. Forty-one percent of the U.S. companies surveyed expect their trade volume to increase, and just 11% expect a decrease. Similarly, 47% of the U.S. companies expect the economy to grow "slightly" in the next three months, and 3% think it will grow significantly, while just 14% expect a decline.
"The sentiment is quite positive," says William Nowicki, HSBC's head of trade and supply chain in North America.
The survey shows that 89% of the U.S. businesses trade with Southeast Asia, while 74% trade with Greater China, which includes Hong Kong and Taiwan, 65% trade with Canada and within the U.S., and 63% with Latin America. "In our dealings with companies, we still see China, Latin America and Southeast Asia being extremely, extremely important," Nowicki says.
But the survey also showed that over the next three months, U.S. companies see the greatest opportunities in trade with Canada and in the domestic market.
See also: Is Getting Back to Normal Possible?
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Susan Kelly
Susan Kelly is a business journalist who has written for Treasury & Risk, FierceCFO, Global Finance, Financial Week, Bridge News and The Bond Buyer.
