Chief financial officers in the U.S. and Europe are expressing more optimism in their businesses and towards the broader economy, finds the most recent survey of CFOs conducted by Financial Executives International (FEI) and Baruch College’s Zicklin School of Business.
According to the “CFO Quarterly Global Outlook Survey,” which polls CFOs of public and private businesses in the U.S. and Europe, respondents this quarter, particularly in the U.S. are upbeat on hiring, wages and capital.
However, their longer term outlook for economic growth and the fate of the Eurozone remains less certain.
The quarterly optimism index for U.S. CFOs for the global economy averaged 54.96 (from 54.60 last quarter) and the CFOs were even more confident about the U.S. economy, which increased to 64.17 (from 62.00).
Confidence among EU CFOs in the global economy averaged 54.80, up several points (from 51.40) the last time they were surveyed, and they were more optimistic regarding the U.S. economy than their US counterparts, with the index averaging 64.72 this quarter.
However, when asked to rate their concern on a scale of one (not concerned) to five (very concerned), 70 percent of all EU CFOs and 75 percent of U.S. CFOs were moderately-to-very concerned about the fate of the Eurozone.
Many CFOs also stated they believe a recovery of the European economy could take more than a year or two, with 32 percent of U.S. CFOs and 28 percent of EU CFOs predicting an economic recovery would not occur until 2016 or beyond.
U.S. CFOs’ confidence toward their own businesses increased more than four points this quarter to 72.05 (from 67.70). EU CFOs’ confidence in their businesses averaged 59.79 on the index, less than a point below what they reported in the fall of 2013 (60.60).
More than a third of U.S. CFOs (38%) reported capital spending at a normal rate and another 21 percent are making ambitious investments in capital expenditures this quarter.
Conversely, EU CFOs were more reluctant about both hiring and capital spending, as 62 percent indicated cautious spending this quarter with only a third of European CFOs anticipating hiring within the next six months.
Those CFOs that were making capital expenditures most commonly invested in technology (68% in the U.S and 50% in the EU).
U.S. CFOs indicated that in the next 12 months, they expect the largest increases in the areas of net earnings and revenue and EU CFOs anticipate smaller increases in capital spending in addition to revenue.
While EU CFOs are expecting healthcare costs to increase less than one percentage point, U.S. CFOs are expecting a nine point increase on average. However, this represents a 20 percent decline in the expected increase in healthcare costs from the previous quarter (from 10.9 to 8.74).
Wage levels and employment for CFOs demonstrated overall stability and even increase this quarter.
This quarter, 67 percent of EU CFOs stated that the levels they are paying are about the same as the levels they paid this time last year, while this same percent of U.S. CFOs said the wage levels they are paying are on the rise.
Nearly twice the percentage of U.S. CFOs (63%) plan to hire employees within the next six months compared with EU CFOs (33%) who are hiring.
Those CFOs that plan to employ more individuals are most commonly seeking mid-career professionals, experienced and skilled technical workers and entry-level university graduates.
Despite marginal progress in hiring, when asked the timeframe they anticipate their economy would reach full employment, the majority of CFOs said they see this as a long-term goal: Fifty five percent of U.S. CFOs and 47 percent of EU CFOs project that full employment would not occur until 2016 or beyond.
Effectiveness of government monetary policies
Respondents of the survey were also asked to opine the effectiveness of government monetary policies in laying the groundwork for long-term economic growth in their respective regions and the Fed’s policies were the clear winner for both EU and U.S. CFOs.
More than half of U.S. CFOs thought that the Fed’s policies were effective: thirty-two percent thought the Fed was more effective than the ECB, along with an additional 19 percent who believed that both policies were relatively effective.
In Europe, three in four CFOs were favorable of the Fed’s policies: forty-five believed the Fed’s policies were more effective, and another 30 percent thought both were effective.
Only five percent of U.S. CFOs and nine percent of EU CFOs believed the ECB’s policies had been more effective.
In light of several major foreign relations headlines that have impacted the U.S., the majority of CFOs believed that the U.S. public's reactions to the Administration's handling of these issues suggests both a growing criticism of the Obama Administration for a weak foreign policy (67% of U.S. CFOs and 41% of EU CFOs).
The CFOs also expressed a “concern with the increasing costs of U.S. commitments abroad” (31% of U.S. CFOs and 32% of EU CFOs).