By Freddie Mooche

(AXcess News) Washington - According to the latest Duke University CFO survey, Americas financial executives are more optimistic overall towards the US economy recovering in 2009 than during the last CFO survey.  In fact, half say the US economy will begin recovering in mid-2009.

The Survey, conducted quarterly by Duke University in cooperation with CFO Magazine, interviewed over 1,200 financial executives around the world with more than 500 of those in the United States.  The Duke University/CFO Magazine Global Business Outlook survey, which has been conducted for 50 consecutive quarters, asked financial executives about their expectations for the economy, finding that while the number of CFOs believe the US economy will recover by mid-2009, that number has not changed from the prior survey.

John R. Graham director of the survey and a finance professor at Duke's Fuqua School of Business said, "This is important because it indicates the end of the difficult period is in reach - the end is not moving farther away like a mirage in the desert, staying forever out of reach."

But despite CFO optimism being unchanged towards the future of the economy, during the third quarter employment, consumer spending and concern over continuing credit problems are weighing heavily on US financial executives.

Domestic employment over the next twelve months is expected to fall 1.6 percent, while capital spending is expected to increase 0.6 percent.

Weak consumer demand continues to be the biggest concern for CFOs, the survey indicates. The credit markets and difficulty in attracting and retaining high-quality employees are also significant worries.

Among firms directly hurt by the credit crunch, 60 percent say credit is hard to find, 53 percent say their borrowing costs have increased (by 102 basis points on average) and 29 percent have had difficulty arranging a line of credit. Among these same firms, more than 60 percent say they will reduce investment or hiring in response to the adverse economic conditions.

Despite concerns by CFOs over their current outlook, Graham says the US economy is showing signs of stablizing.

"The U.S. economy is struggling, but there are signs that we are bottoming out," said Graham.  "Pessimistic CFOs outnumber optimists, capital spending will be weak, employment will fall and the credit crisis continues to affect the economy. However, there are signs that the economy will not deteriorate further; the ratio of optimists to pessimists has improved."

Weak consumer demand is the top corporate concern this quarter. CFOs also continue to worry about credit markets, which are devastating lower-rated firms. Nearly 70 percent of these companies have been hurt directly by the credit crunch, with the cost of credit increasing by 110 basis points among firms rated B or lower.

Difficulty in attracting and retaining high-quality employees is the top concern CFOs have about their own companies' operations, followed by the difficulty of planning in the uncertain economic environment. Fuel costs are less of a concern than they were last quarter, when they were the top concern.

"U.S. companies will continue to constrain capital spending and expansion plans until they see signs the economy is improving," said Kate O'Sullivan, senior writer at CFO Magazine. "They are particularly worried about weak consumer demand. Unfortunately, the export growth that has propped up the U.S. economy may wane going forward, given a strengthening dollar and a worsening outlook overseas. Therefore, in the near term, we do not expect to see the business sector rush to the economy's aid."

The economic situation in Europe is also troubling to US-based financial executives and of those CFOs surveyed in Europe, six out seven say they are more pessimitic about the European economy.  Optimism is now at a four-year low in Europe.

With overseas companies growing more pessimistic, and the U.S. dollar having recently increased in strength, it seems unlikely U.S. export growth will continue to sustain the U.S. economy, the Survey's authors note.

According to the CFO survey respondents in Europe, european companies will be actively pursuing mergers and acquisitions, with 52 percent of those financial executives surveyed saying their firms plan to buy part or all of another firm.

Among European firms affected by the credit crisis, 70 percent will delay capital spending plans and 55 percent will curtail hiring plans in response.

While in Asia, things aren't much different than in Europe.

Weakness in Western credit markets is affecting Asian firms. Among Asian companies that have previously secured debt from banks in the West, 60 percent say they either have already borrowed from local Asian banks instead or are considering such a move.

Inflation is having a significant negative effect on Asian companies. Seventy-one percent say they have established a substantial cost-cutting program in response to rising inflation, 67 percent say that they have changed their sourcing practices (by consolidating suppliers, for example), and nearly half have reduced capital spending or hiring plans in response to rising inflation. Another 44 percent have started hedging with financial instruments to ward off the effects of inflation.

Source: cfosurvey.org