CFOs Take Dim View of US Economy

December 14, 2011

merril-lynch-economic-outlook-2011-2012-dec11.gifCFOs give the US economy an average score of 44 on a scale of 0 to 100, down from 47 at the beginning of 2011, according to a survey released in December 2011 by Bank of America Merrill Lynch. Insight from the “2012 CFO Outlook” survey indicates that this score is equal to the 2010 score, which was the lowest in the survey’s 14-year history. The global picture looks just as bleak: the global economy now rates lower than the US, at 43, down from 51 at the beginning of 2011.

Meanwhile, only 38% of CFOs expect the US economy to expand in the coming year, down from 56% in last year’s survey.

Less Predict Revenues, Profit Growth

Although CFOs hold a fairly pessimistic view of the economy, 56% expect their corporate revenues to grow in 2012, although that proportion is down from 64% a year ago. Similarly, while 41% are forecasting profit growth, that proportion is also down from 55% one year ago, and a significant 15% of respondents predict declines in the year ahead.

Consumers beware: prices look like they will trend upwards next year. Half of the CFOs surveyed intend to increase the prices of their products in 2012, while 44% will keep them steady and only 4% will lower them. On a brighter note: 46% expect their companies to hire employees, unchanged from last year, while only 7% anticipate workforce reductions.

Government, Budget Deficit Top Concerns

The leading economic concerns among CFOs (rated as a 8,9, or 10 on a scale of 1 to 10) are the effectiveness of US government leaders (70%), the US budget deficit (63%), and healthcare costs (60%). In addition, 58% list unemployment levels and 55% see consumer confidence as concerns. By contrast, last year’s top concern was healthcare reform, chosen by 54% of CFOs.

Consumers Set More Optimistic Tone

Americans’ economic confidence appears to be rising, though: according to BIGresearch December figures, 27% of consumers say they are confident or very confident in the chances for a strong economy, representing 14% growth from 23.7% in November, and putting confidence on par with December 2010 (27.3%). Meanwhile, Gallup data indicates that while economic confidence remains weak, it has continued to steadily improve during early December: Gallup’s Economic Confidence Index reached -39 during the week ending December 11, its best level since July, though still weaker than the -32 of the same week a year ago.

The index is an average of two components: ratings of current economic conditions and Americans’ perceptions of whether the U.S. economy is getting better or getting worse. While both dimensions remain highly negative, at -39 each, economic outlook has improved from -50 the week ending November 6. Gallup analysis indicates that in part, the current improvement likely reflects consumer optimism surrounding the holidays. And while improving economic confidence may not be enough to drive higher consumer spending on its own, it can provide the conditions that make it possible. According to Gallup, if economic confidence continues to improve in the next few weeks as it did last year, consumer spending during the holidays may exceed that of a year ago.

About the Data: The Bank of America Merrill Lynch results are based on a survey of 600 executives. BIGresearch’s data is based on a monthly monitor of over 8,000 consumers. Gallup’s results are based on telephone interviews conducted as part of Gallup Daily tracking Dec. 5-11, 2011, with a random sample of 3,419 adults, aged 18 and older, living in all 50 U.S. states and the District of Columbia.

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