CEOs and CFOs Register Record Pessimism on Economy

3/19/2009

By Maria Williams

 

 

Two recent surveys from two different sources—one polling chief financial officers (CFOs) and the other chief executive officers (CEOs)—revealed record-breaking pessimism about the economy. In the most recent Duke University/CFO Magazine Global Business Outlook Survey, U.S. and foreign CFOs rated the economic outlook at a 40 on a scale of 1 to 100—a low in the history of the survey, which has been conducted for 52 consecutive quarters. Showing parallel grim results, the Chief Executive magazine's CEO Confidence Index reported that a stunning 95 percent of U.S. CEOs described current business and employment conditions as “bad,” which is the highest percentage of CEOs who have expressed such pessimism since polling began in October 2002.

The February 2009 CEO Index findings come from the most recent monthly e-mailed survey, to which 371 Chief Executive magazine subscribers responded.

The CFO findings, dated Feb. 27, 2009, asked 1,268 CFOs from a broad range of global public and private companies about their expectations for the economy.

Obama’s Honeymoon: Over Before It Began?

CEO findings. According to Chief Executive magazine's CEO Index, U.S. CEOs are already souring on President Barack Obama’s stimulus efforts.

CEOs expressed anger toward the finance executives receiving bailout money. Asked to weigh in on Obama's cap on executive compensation for the companies receiving Troubled Assets Relief Program (TARP) funds, 53 percent of CEOs favored caps on executive pay.

"You don't give the captain of the Titanic a bonus for hitting an iceberg and causing the ship to drown. CEOs receiving bailout money for their sinking ships should be held to the same standard," said John Chirikas, CEO of Horizon Steel Co., in a press statement. "The interference from government is alarming, but frankly, it is a direct result of the terrible mismanagement by the financial community and, sadly, will have severe ramifications for all of us."

Yet, despite favoring executive pay caps, 45 percent of CEOs polled said the executive caps would negatively affect or significantly negatively affect the performance of the companies receiving TARP funds, while only 20 percent of CEOs said the caps would have positive or significantly positive effects. Thirty-one percent of CEOs said the pay caps would have no effect on how well the companies performed.

CFO findings. The president’s stimulus plan hasn’t calmed CFOs' fears any more than it has reassured CEOs. Regarding the economy, their third largest external concern (after consumer demand and consumer markets/interest rates) is about the new administration and Congress. Roughly 32 percent of CFOs said that the economic stimulus actions taken to date have helped the economy, which matches the 32 percent who said the economy is worse off because of the stimulus actions. One-third said the stimulus efforts had no effect. More than half (53 percent) of CFOs said their companies would fare worse with a national health care system, compared to only 19 percent who said their businesses would benefit from such a system.

General Pessimism

CEO findings. With the exception of brief partial rebounds in August 2008 and January 2009, the CEO Confidence Index, which measures overall confidence in the market, has been hitting new “historic lows” since July 2008, when the index dipped to 92.6. (The index started at 100 points in 2002, when it was first tallied.) The CEO Confidence Index equals the average of its sub indexes: current confidence, future confidence, investment confidence and employment confidence.
Index.

Index	February 2009	January 2009	Monthly Change
CEO Confidence Index	39.2	51.2	-12
Current Confidence Index	49.1	62	-12.9
Future Confidence Index	15.9	27	-11.1
Investment Confidence Index	71.7	84.4	-12.7
Employment Confidence Index	23.1	35.3	-12.2

CFO findings. More than two-thirds of U.S. CFOs grew more pessimistic about the U.S. economy during the last quarter covered by the survey (December 2008¬¬-February 2009). On a scale of 0 to 100, U.S. CFOs placed the economic outlook at an all-time low of 40, and their European and Asian counterparts were likewise grim, rating their economies at 43 and 47, respectively.

“This is very troubling,” said Kate O’Sullivan, senior writer at CFO Magazine in a statement. “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.”

According with their overall pessimism, in all of their respective regions, U.S., European and Asian CFOs expect earnings, capital spending and tech spending to fall. Earnings are expected to drop by 22 percent at U.S. public companies, 11 percent in Europe and 9 percent in Asia. Capital spending is expected to decline 13 percent in the United States, 16 percent in Europe and 9 percent in Asia. Tech spending is expected to diminish by about 6 percent in all regions, and marketing and advertising spending is expected to drop by more than 7 percent in all regions.

The Outlook

CEO findings. Over the next quarter, 69 percent expect the economy to worsen, and 77 percent expect unemployment to rise. Each of these statistics on future confidence marks the second worst rating in its area since the CEO Index polling began. The worst rating for future confidence in the economy was set in December 2008, and the worst rating for future confidence in employment was set in November 2008.

"These low levels of confidence are unprecedented," said J.P. Donlon, editor-in-chief of Chief Executive magazine. "Not only are CEOs strongly bearish, they do not expect a turnaround anytime soon."

CFO findings. CFOs don’t anticipate things getting any better any time soon either: A mere 35 percent of CFOs expect the U.S. economic recovery to begin in 2009. Most U.S. CFOs expect recovery to begin in 14 months; most European CFOs expect 16 months until recovery begins; and most Asian CFOs expect 13 months.

Maria Williams is a staff writer for SHRM Online.