Despite the recent global equity-markets meltdown, the most recent "CFO Outlook" study from Bank of America Merrill Lynch shows optimism among U.S.-based midmarket CFOs.
Last December, we reported that the bank's end-of-year "CFO Outlook" study indicated finance executives had a rosier outlook than at any time in the prior seven years. That optimism continues to flourish, according to the bank's recently released midyear update of the report, based on a survey of 250 finance executives who work in U.S.-based companies with between $25 million and $2 billion in annual revenue.
On a scale where 0 represents extremely weak and 100 represents extremely strong—and, thus, 50 represents a position that's neither optimistic nor pessimistic—respondents to the midyear survey gave the U.S. economy an average score of 63, up 4 points from the end-of-2014 score of 59. Confidence in the world economy rated lower but is also improving, with a score of 54 midyear vs. 51 last December. (See Figure 1, below.)
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Alastair Borthwick, head of global commercial banking with Bank of America Merrill Lynch, suggests taking this statistic with a grain of salt, since the midyear study has about one-third the number of respondents of the end-of-year study. Still, he says, "the story of the year-end study was growing confidence and growing momentum. This was the third year in a row that the scores for the world and the U.S. improved. In the U.S., they have accelerated each year. And if you look at the midyear scores, that trend continues."
Also notable, the survey indicates that U.S.-based midmarket companies are considerably more bullish about growing their business in the United States than expanding abroad. Eighty-four percent of respondents said their company is driving earnings through domestic expansion, versus only 27 percent who said it's making substantial international investments.
Nearly three-quarters of organizations are meeting or beating their earnings targets for 2015. (See Figure 2, below.) Among non-manufacturing businesses, 77 percent are meeting or exceeding expectations, while 64 percent of manufacturers are in that category.
"Across all survey respondents, those numbers are close to 25, 50, and 25," Borthwick says, "so we've basically got a group of people who said they're right on track six months into the year. Again, that speaks to people gaining in confidence. When you have a six-month period where everything, more or less, goes according to plan and you feel less worried about the world, you're going to feel more comfortable about investing in growing your business. Which explains why this is the highest set of numbers we've polled since the 2008 survey, which we conducted in December 2007."
The CFOs surveyed did express concern about several threats to earnings: healthcare costs (score of 38 on the same 0-to-100 scale on which U.S. and world economies were rated), increased competition (score of 32), shortage of skilled talent (32), regulatory issues (30), and weak demand (29). But Borthwick points out that these numbers are much lower than they've been in the recent past. For example, healthcare costs have been CFOs' top concern for the past three years, but the midyear 2015 score of 38 is a significant drop from the 67 that healthcare costs received at the end of 2013 and the 56 rating for healthcare costs at the end of last year.
"These numbers are often in the 50s and 60s, which indicates substantial concern about these issues," Borthwick says. "It's interesting to see our highest numbers in this study in the 20s and 30s."
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