Global CFO Survey: Recession into 2010, Employment and Spending to Fall
DUKE UNIVERSITY NEWS
Duke University Office of News & Communications
FOR IMMEDIATE RELEASE: Wednesday, March 4, 2009
CONTACT: Kate O'Sullivan (CFO Magazine)
(617) 345-9700 ext. 214
Chris Privett (Duke)
CFO SURVEY: HISTORIC RECESSION TO LAST ANOTHER 14 MONTHS; EARNINGS, CAPITAL
SPENDING AND EMPLOYMENT EXPECTED TO DROP IN 2009
DURHAM, N.C. -- Chief financial officers in the United States and around the world say the
global recession will last well into 2010. Companies plan dramatic cuts to employment and
capital spending and anticipate double-digit earnings declines over the next year.
Corporations are concerned about the actions of President Obama's administration and
Congress, and only one-third believe that federal stimulus activities have helped the
These are some of the findings of the most recent Duke University/CFO Magazine Global
Business Outlook Survey. The survey, which concluded Feb. 27, asked 1,268 CFOs from a
broad range of global public and private companies about their expectations for the
economy. (See end of release for survey methodology.) The research has been conducted
52 consecutive quarters.
SUMMARY OF FINDINGS
-- CFOs express record pessimism. (See graph at bottom of release.)
-- Only 35 percent of CFOs say the U.S. economic recovery will begin in 2009, with most
CFOs expecting recovery to begin in 14 months. European (16 months) and Asian CFOs (13
months) also expect the recession to last well into 2010.
-- Employment is expected to fall in the U.S. (5.6 percent reduction), Europe (7.6 percent
reduction) and Asia (3.2 percent reduction) over the next year. In addition to layoffs, a
majority of firms report wage freezes or cuts, as well as reductions in hours worked.
-- Weak consumer demand and financial market woes are major external concerns for CFOs
around the world. Working capital management is a primary internal concern, as is
maintaining employee productivity and morale.
RECORD CORPORATE PESSIMISM
More than two-thirds of U.S. CFOs have grown more pessimistic about the U.S. economy
during the last quarter. On a scale of 0 to 100, U.S. CFOs rate the economic outlook at an
all-time low of 40.
European and Asian CFOs are similarly pessimistic, rating their
economies at 43 and 47, respectively, on a scale of 0 to 100.
"This is very troubling," said Kate O'Sullivan, senior writer at CFO Magazine. "Throughout
the history of our survey, CFOs have shown a remarkable ability to predict future economic
conditions. They anticipated the current recession as far back as September 2007.
Given the CFOs' track record, the historic pessimism CFOs are currently expressing certainly
indicates a tough road ahead in 2009."
Consistent with their pessimistic view, CFOs expect earnings to fall by 22 percent at U.S.
public companies, and also to fall in Europe (11 percent) and Asia (9 percent). Capital
spending is expected to decline in the U.S. (13 percent), Europe (16 percent), and Asia (9
percent). Tech spending will also suffer, falling by about 6 percent in all regions. Marketing
and advertising spending is expected to drop by more than 7 percent.
EMPLOYMENT, WAGES AND EARNINGS
Over the next year, domestic employment is expected to fall in all surveyed regions.
"Even with the stimulus plan, CFOs expect to lay off nearly 6 percent of their workforces.
This represents a staggering 7.6 million job losses,
" said Fuqua international finance
professor Campbell Harvey, founding director of the survey. "And it gets worse: in addition
to the layoffs, many CFOs plan wage freezes and reductions in the number of hours worked
for those employees that are retained."
Nearly 60 percent of U.S. companies indicate they will institute a hiring freeze for the next
In addition, 57 percent will enforce a wage freeze or reduction, with one in five
companies expecting to reduce wages over the next year.
Thirty-nine percent of companies will reduce employees' work hours.
Among the industries surveyed, service and consulting firms anticipate the strongest
earnings in 2009, followed by healthcare companies. Public manufacturing firms expect
earnings to fall 30 percent.
CREDIT MARKET CONDITIONS AND RELIANCE ON BANK CREDIT LINES
Credit market turmoil is still buffeting the corporate sector, with the effects much worse on
companies with poor credit ratings. About 40 percent of companies rated AAA or AA indicate
credit market conditions are hurting their firms. Among companies rated B or lower, 77
percent say they have been hurt.
Companies rated B or lower have nearly maxed out credit lines, drawing on average 70
percent of the maximum.
AAA and AA rated firms, in contrast, have drawn only 27 percent
of the maximum.
"Bank lines of credit are usually a temporary source of funding, or are used as a last resort,"
said John Graham, a finance professor at Duke and the director of the survey. "In the
current market, many companies have few funding options beyond their credit line.
In fact,there has been a bank run of sorts on credit lines, with poorly rated companies drawing
, just in case their bank decides not to lend to them in the future. This action has
in part crowded out the ability of banks to lend to other firms, exacerbating the lack of
credit elsewhere in the system."
Over the past six months, the amount of external funding provided by bank lines of credit
has approximately equaled the total amount provided by other sources of borrowing, such
as short-term and long-term debt.
Credit markets remain extremely tight. Among companies that report they have been
directly affected by credit market turmoil, nearly 60 percent have had trouble accessing
, and nearly half report a higher cost of credit (relative to pre-crisis costs).
PRESIDENT OBAMA: NO HONEYMOON WITH CFOs
U.S. CFOs are lukewarm on President Obama's policy ambitions. Corporate concern about
the new administration and Congress ranks as their third biggest external concern. About 32
percent of CFOs indicate they feel the economy has been helped by the economic stimulus
actions taken to date, equal to the 32 percent who indicate the economy is worse off.
Another one-third feel the stimulus efforts have made no impact. Finally, more than half (53
percent) of CFOs say their companies would be worse off with a national health care
system, compared to only 19 percent who say their businesses would be better off.
ADDITIONAL EUROPEAN DATA
Only one in five European CFOs expect their own country's economy to begin to recover in
Another 37 percent expect the recovery to begin in the first half of 2010. The
remaining 43 percent expect economic recovery will not begin until the second half of 2010
Nearly two-thirds of European companies indicate they will institute a hiring freeze over the
next year, and 57 percent will freeze or reduce wages.
Almost one-third of companies say
they will reduce work hours for remaining employees. More than 60 percent will reduce their
workforce, with the average reduction among those firms being 9 percent.
The top three external concerns for Europeans are weak consumer demand, the financial
and banking system, and credit markets more generally.
Fifty-eight percent of European CFOs report problems with suppliers, ranging from 40
percent of suppliers being unable to obtain trade credit or bank financing to 21 percent of
companies having a supplier go out of business.
ADDITIONAL ASIAN DATA
More than two-thirds of Asian firms plan a hiring freeze for the next 12 months.
Sixty-three percent plan a wage freeze or wage reduction.
In addition, 30 percent of Asian CFOs say
their firms will reduce the hours worked by employees who retain their jobs.
Forty-six percent of Asian CFOs expect their own country's economy to begin to recover in
2009, and another 29 percent expect the recovery to begin in the first half of 2010.
Fifty-five percent of Asian CFOs report problems with suppliers, with many not receiving
enough order volume to be viable.
This has led to a consolidation of orders with stronger
suppliers at nearly half of Asian firms.
ADDITIONAL CHINESE HIGHLIGHTS
Chinese CFOs say their top concerns about their own companies are working capital
management, maintaining the morale and productivity of workers, and attracting and
retaining qualified workers.
Their top external concerns are weak consumer demand, credit markets and the cost of non-fuel commodities.
Employment and capital spending are expected to decline over the next year.
More than two-thirds of Chinese companies will impose a hiring freeze this year, and 30
percent will reduce wages. One-third will reduce the hours worked by retained employees.
Among Chinese companies with bank lines of credit, the average firm has drawn 56 percent
of the maximum allowed.
Detailed results, including tabular summaries of the numbers in this release and results
from previous surveys, are available at <http://www.cfosurvey.org>