Finance chiefs were feeling better about the economy in the first quarter than they did three months earlier, according to a survey of nearly 370 CFOs conducted by Financial Executives International and Baruch College's Zicklin School of Business. FEI's index of CFO optimism on the economy posted an increase for the last four quarters, rising to 58.14 in the first quarter, up from 56.98 in the fourth quarter. That's well above the all-time low of 38.96 in the first quarter of 2009.
The CFOs also were more confident about the outlook for their own companies; that index rose to 69.49 in the first quarter, up from 67.09 in the fourth quarter.
John Elliott, dean at the Zicklin School of Business, sees a correlation between the CFOs' views and recent economic news. "If you're watching the earnings announcements coming out, you're seeing very substantial increases in profit," Elliott says. "The CFOs say they're looking for revenue growth of 13% and earnings growth of 26%" over the next 12 months.
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Despite their rosier views, a majority of the finance executives say they're still waiting for the economic recovery. Just 28.4% of the CFOs say an economic recovery has begun, while 21% expect it to start in the second half of this year and 47% think it will take until next year or even longer.
Elliott says the CFOs' wariness about calling the start of the recovery "may just be well-earned caution." He notes the disparity between CFOs' expectations that their own companies will boost hiring by 7%, while "for the economy as whole, they don't see great upticks in hiring and they don't see a very significant moderation in the unemployment rate."
When it comes to credit, almost 30% of the CFOs surveyed say they expect that it will be easier for corporations to access credit over the next six months, while 55% expect no change and just 15% say it will be more difficult to access credit.
And a significant portion of the CFOs managed to reap some benefit from the downturn by realizing savings on their real estate costs, with 35% saying they were able to renegotiate lease agreements. "We had heard from members anecdotally that there was an opportunity to renegotiate, assuming your lease was up," says Cheryl Graziano, vice president of financial research and accounting policy at FEI.
One exception to the generally positive views of the CFOs surveyed is their take on healthcare reform. Seventy-three percent expect the Patient Protection and Affordable Care Act (PPACA) to have a negative impact on U.S. citizens and 74% say it will have a negative impact on their own company.
Graziano says the CFOs' views on healthcare reform reflect not only "cost implications but also the impact on the benefits for employees." The CFOs predicted healthcare reform would boost costs at their companies by an average 8.12%. Sixty-two percent expect PPACA will cause their company to boost employee co-pays, while 47.6% expect their company to lower the quality of the healthcare package it provides.
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