CFOs Expect U.S. Growth to Remain Strong Despite Asian Crisis; Say Deflation Isn't Likely
PR Newswire - January 13, 1998 08:07
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DURHAM, N.C., Jan. 13 /PRNewswire/ -- Sixty-three percent of U.S. chief
financial officers expect the recent turmoil in Asian markets to have no
effect on their firms' profits over the next four quarters, according to the
most recent Financial Executives Institute/Duke-Fuqua School of Business
Corporate Outlook Survey. Of the 37 percent of executives who expect their
earnings to be affected by the Asian crisis, either positively or negatively,
the average change in earnings is expected to be only five percent.
Only 16 percent of the CFOs expect to experience downward pressure on the
prices of their products due to the Asian situation. "Overall, CFOs do not
expect the Asian crisis to derail the continued robust growth in the U.S.
economy nor lead to deflation," says John Graham, Fuqua professor of finance
and director of the survey. Graham notes, however, that fully one-third of
manufacturing companies expect to feel increased price pressure from Asian
competition.
Wages and Prices
CFOs say that they will increase the wages of their employees by
3.8 percent in 1998. However, these wage increases will not be fully
reflected in the prices of their products. Fifty-five percent anticipate
increasing the prices of their products during 1998, with an average price
increase of 2.2 percent forecast across all firms. Graham cites continued
improvement in worker productivity, as well as international price
competition, as the factors allowing workers' salaries to increase at a rate
higher than the rate of product price increases. Adds FEI Chairman William U.
Parfet, co-chairman of MPI Research of Mattawan, Mich., "CFOs seem to be
convinced that inflation is well in hand, although they stopped short of
predicting deflation anytime soon."
The anticipated growth in wages is relatively consistent across
industries, although the retail and wholesale industries expect wage increases
of only 2 percent, while the manufacturing sector anticipates wage inflation
of 4.2 percent.
Employment
1998 should be another year of continued strong employment growth in U.S.
companies. Sixty-five percent of the financial executives polled in the
FEI-Duke survey expect their companies to increase the number of employees,
while only 15 percent expect their employment rolls to decline. This outlook
is slightly less optimistic than the previous quarter (before the Asian crisis
began), when 68 percent of firms expected increases in their workforces, but
is still very strong by historic standards. More than three-fourths of
companies in the communications, media and financial sectors of the economy
expect to increase their number of employees, while only half of retail and
wholesale firms expect to do so.
Restructuring and Capital Expenditures
The survey results indicate that the torrid pace of merger and acquisition
(M&A) activity, which has recently been at an all-time high, will continue in
the coming year. "In the past few years we have witnessed a refocusing of
corporate America," according to Graham, "with firms splitting off divisions
not related to their core business, while at the same time acquiring firms
within their industry." He adds that merger activity will slow slightly in
1998 but remain at very strong levels, with 42 percent of firms expecting to
increase their M&A activity, in comparison to 45 percent at the time of the
last survey.
According to the survey, firms expect to dramatically slow their capital
expenditures in 1998. The capital investments index (percent of firms
increasing capital expenditures minus percent of firms decreasing
expenditures) stands at 46 percent, the lowest value in the past two years.
In particular, firms with substantial foreign exposure (at least half of sales
in non-U.S. markets) have an index value of 20 percent.
Profitability and Revenues
The survey indicates that CFOs anticipate broad growth in corporate
profits. Eighty-four percent of the executives polled expect corporate
earnings to be higher over the next four quarters than they were over the
previous four quarters. This is the second highest level in the survey's
history. However, this figure has dipped slightly since October 1997 (prior
to the Asian crisis), when 88 percent of the executives forecast earnings
growth. Approximately 84 percent of the executives expect sales revenues to
increase in 1998.
With price/earnings ratios in the stock market at or near all-time highs,
many economists believe they are not sustainable and fear that stock prices
will fall. The newest FEI-Duke survey paints a different picture, however.
"The vast majority of CFOs surveyed believe that profits will increase enough
in the near term to bring price/earnings ratios back in line with historical
averages," according to Graham.
Outlook By Region
Ninety-five percent of the executives in the Southern United States expect
sales and earnings to grow in 1998, giving executives of Southern-based firms
the most optimistic outlook. In contrast, only 65% of the executives in
Western and Northern-Atlantic firms expect their sales and earnings to
increase in 1998, perhaps because these firms have larger exposure to Asian
markets, Graham notes.
With respect to employment and capital expenditures, the executives of
firms headquartered in the Southwest are most optimistic, with 70% expecting
to increase the employment roles and 60% expecting to increase capital
expenditures.
The survey conducted by FEI and Duke's Fuqua School of Business polled a
broad cross-section of financial executives from 3,000 U.S. companies during
the week of December 22, 1997. Complete survey results are available on the
Internet at: duke.edu
About FEI and Fuqua
Financial Executives Institute is the leading advocate for the views of
corporate financial management. Its 14,000 members hold policy-making
positions as chief financial officers, treasurers and controllers at 8,000
companies throughout the United States and Canada.
The Fuqua School of Business at Duke University was founded in 1970.
Fuqua's mission is to provide the highest quality education for business and
academic leaders and to promote the advancement of the understanding and
practice of management through research.
SOURCE Financial Executives Institute; Duke-Fuqua School of Business
/CONTACT: Chris Allen of the Financial Executives Institute,
973-898-4658, or callen@fei.org; or Cabell Smith of The Fuqua School of
Business, 919-660-7722, or cs6@mail.duke.edu/
/Web site: fei.org
/Web site: duke.edu~jgraham/ |
