CFO Survey Looks Less Confident for Fall of 2012

A survey conducted by Bank of America Merrill Lynch shows that confidence in economic growth declined sharply in its latest CFO Outlook survey for the fall of 2012. Financial executives are expressing concerns about several potential impacts on the nation’s economy, and they have grown more cautious as the year progressed. Before you hit the panic button, it is important to realize that the period is not as current as more recent data, and there is a fairly wide margin of error stated for this report.

Sadly, only 36% of financial executives surveyed expect the economy to expand in 2012. That is down from 63% in the spring update. Some 13% expect the economy to contract, up from 4% in the spring outlook. The latest responses are similar to the 2012 CFO Outlook annual survey from a year ago, when only 38% of executives said they expected economic expansion this year.

Several factors were to blame. One was the effectiveness of U.S. government leaders cited by 70% of those surveyed; 61% named the U.S. budget deficit; health care costs were cited by 60%; global market unrest was cited by 55%; U.S. unemployment was cited by 54%; consumer confidence was cited by 53%; and even 50% cited high oil prices.

It may be important to note that the September consumer confidence index surged to much better than expected this morning, and oil prices are markedly lower compared to even two weeks ago.

Here are a couple more tidbits:

• CFOs gave the current U.S. economy an average score of 53 out of 100, the same as in the spring; but they gave the global economy a score of 45, down from 47.
• Confidence in their own 2012 performance was down, with 60% forecasting higher revenues versus 64% in the spring outlook; only 44% see higher profit margins, versus 50% in the earlier report.
• Only 46% of CFOs predict more hiring this year, versus 51% in the previous survey.

We already noted that some of the comments and points may be out of date. After looking at the methodology, the Fall 2012 CFO Outlook report was put together by Granite Research Consulting in surveys from interviews of 250 CFOs, finance directors and other executives selected randomly from U.S. companies with annual revenues between $25 million and $2 billion.

It also was shown that these interviews were conducted from mid-June to mid-July, which we would quickly point out was when markets were recovering but after such a negative overseas news flow. Another issue to consider is that the margin of error in this report is projected to be up to 6% in either direction, and that leaves a lot of room for change.

JON C. OGG