View From a Height
Commentary from the Mile High City
Friday, June 18, 2004

The CFOs Speak 

Every quarter, Duke University's Fuqua School of Business polls corporate CFOs about the economy. This is critical, because the role of a corporate CFO is to plan. They have to plan how their company is going to spend money this year: on employees, on benefits, on new equipment and new software. And to plan your budgets, you have to know what, class? Anyone? Anyone at all? *Sigh* Anyone besides Lisa? Yes, that's right, you have to know how much you expect to sell.

That means this survey tell you lots of things: how businesses plan to spend, and capital expenditure is a large part of the economy, and how much they expect to make. How many people they plan to hire. This comes from the horse's mouth, so to speak, and according to Duke prof John Graham, these guys are pretty accurate. My brother-in-law is the CFO for a start-up, and he's going through the same thing right now. You never know everything, of course, but the point of a survey is that none of us is as smart as all of us. Or something like that.

Anyway, the survey has some interesting results, many of which suggest that things will be getting better here in Colorado, and many other of which suggest that no businessman with any sense should even consider voting for John Kerry.

Here's where John Kerry comes in. The biggest risk to their businesses, according to CFOs, is the unknown unknown: domestic terrorism. And number 3: wage increases. Not exactly good news for a guy whose foreign policy will almost certainly result in one, and who just came out for an increase in the minimum wage. And as noted later, even as things stand now, CFOs expect to hire half of John Kerry's goal in the next 12 months, even without his, er, "help."

Interestingly, high oil prices don't seem to both most companies, with over 50% saying that $40 a barrel vs. $30 a barrel has either not affected or increased their earnings, 80% saying the same about their investment spending (including capital expenditure), and over 80% saying it hasn't affected their hiring plans.

An aside: The number two risk was increased interest rates. But tied for number 4, just below wage increases, were exchange rates and inflation, both of which higher interest rates are designed to combat. So sometimes, you just can't win with these guys.

The rest of the survey is pretty much good news all the way around.

First of all, 72% are more optimistic than they were last quarter. Maybe this just means they're more confident things are getting better, maybe they really believe things will get better faster than they have been. Regardless, this is good news. Most optimistic region? Companies headquartered in mountain states. When asked about thier own companies, 60% are more optimistic, only 20% less so. In this case the South Atlantic is way out in front, but the Mountain region is a distant second.

Overall, CFOs are expecting a 3.1% GDP growth over the next 12 months. Not the torrid pace we've been seeing but pretty respectable, and comparable to that following the last 8%/4% spurt back in 1984. They expect the prices for their products to increase by only 2.2%, while their productivity should climb 5.4%. These are both very good numbers.

Here's the kicker. Wages and salaries are expected to grow by 3.4%, outpacing prices, and the number of employees is expected to grow by 4.1%. With non-farm payrolls at about 130,000,000, this corresponds to something like 5.3 million jobs in the next 12 months. Dividends should be up, benefiting the investor class. Capital spending should be up, the ripple effect helping to prolong the recovery.

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