Latest CFO survey results

[john c]

Some may find interesting.  The last paragraph regarding deflation is interesting.  Perhaps the economists on here can straighten me out but I'm under the belief that deflation is one of the more serious conditions an economy can face.  If the value of the underlying assets drops and leaves fixed financial contracts underwater the Treasury will(?) print money to cause inflation that will head off any precipitous deflation and on it goes.  Not sure if European situations are contagious or not.  Makes my head spin.

From John Graham @ Duke University:

"Thank you very much for responding to the second quarter 2014 Global Business Outlook, a joint effort between Duke University, CFO magazine, and global partners. We know how busy you are, and we really appreciate your help -- we could not conduct this survey without your participation. This was the 73rd consecutive quarter that we have conducted the survey. Nearly 900 financial executives responded this quarter, from Africa, Asia, Latin America, Europe, and the U.S.

The full results will be posted at http://www.cfosurvey.org at midnight Eastern US tonight. Results are also often relied on by policy-makers and covered by well known press outlets like the Financial Times, the Wall Street Journal, Semana Economica, and NPR. Key findings follow. There are many files with results at www.cfosurvey.org   Key findings follow.

LACK OF PUBLIC TRUST HURTS BUSINESS ENVIRONMENT: Nearly 60 percent of U.S. financial executives think the business environment has been harmed by a lack of public trust of governmental and business leaders. An even larger percentage of CFOs in Africa (64 percent), Europe (68 percent), Asia (71 percent) and Latin America (79 percent) believe public mistrust is creating a drag on the economy.
Public mistrust, even when focused on the government and not directly on businesses, can reduce growth and cause companies to devote time and resources to counteract mistrust's negative effects. Results also show the lack of trust has caused firms to alter business decisions, change governance and emphasize transparency.

OPTIMISM INDEX AND TOP CONCERNS: On a scale from 0 to 100, CFO optimism about the U.S. economy has increased to 61, only the second time the optimism index has been this high since mid-2007. U.S. optimism still trails Asia (65). European optimism has increased but still is below that in the US.

One year ago, Latin American CFOs were the most optimistic in the world. In a dramatic turnaround, the Latin American optimism index has fallen to 53, with Brazilian and Chilean CFOs rating optimism below 50. Africa is the least optimistic region of the world, with an optimism index of only 45.

Business leaders around the world, and particularly in Latin America, include governmental policies as a primary concern for the year ahead. Other worldwide concerns include attracting a skilled workforce (especially in Asia) and maintaining employee morale. In the U.S., CFOs are also worried about the cost of benefits and the negative drag of economic uncertainty. African CFOs have significant concerns about currency risk.

Half of Japanese CFOs believe that reaching an agreement on the Trans-Pacific Partnership (TPP) trade agreement would have a large positive impact on the Japanese economy, and another one-third think TPP would lead to a small positive effect.

LABOR UNREST IN LATIN AMERICA, AFRICA, CHINA:  Almost three-fourths of Latin American CFOs expect there to be work stoppages and strikes during the next 12 months that will adversely affect their countries' economies. Labor concerns are particularly acute in Brazil (85 percent) which especially concerning as Brazil hosts the World Cup; CFOs in Chile (68 percent) and Peru (52 percent) are also concerned. In Africa, half of the CFOs expect economic damage from labor unrest, as do 29 percent in China and 22 percent in Europe. Only 9 percent of U.S. executives expect trouble from labor.

When asked about the causes of labor unrest, CFOs say it stems primarily from wage pressures and general economic problems like slow growth. In China, CFOs note that poor working conditions also drive labor unrest, while African CFOs say that income inequality is a notable cause.

RUSSIAN SANCTIONS: Most companies with business connections to Russia believe that stepped-up sanctions would have a negative to a severely negative effect on their businesses (U.S., 53 percent; Europe, 82 percent; Asia, 51 percent; Japan, 82 percent; Africa, 78 percent; Latin America, 62 percent.)  Two additional findings: First, a large number of firms are either considering reducing their footprint in Russia or already actively pulling back. This includes 22 percent of U.S. firms and 31 percent of European firms. Second, there is a lot of talk about China benefiting from the sanctions. This is not what the CFOs are telling us. Fifty five percent of the Chinese CFOs see stepped-up sanctions as bad news and 33 percent are either reducing exposure to Russia or are considering pulling back.

CASH HOLDINGS:  U.S. and European firms are evenly split on whether they will begin to deploy cash reserves this year or will continue to hold the cash tightly. By comparison, among firms that indicate a clear direction, 60 to 70 percent of companies in emerging economies (Latin America, Asia, Africa) plan to spend some of their accumulated cash during the next year.

Worldwide, among businesses that will unleash cash, the most common use by far will be for capital spending and investment. Next on the list are acquisitions and paying down existing debt. Asian and African firms will also use cash to hire and for marketing, while firms in Latin America are more likely to pay down debt. Among companies that will not begin to spend their cash holdings, those in the U.S. and Asia are say they won't need to use cash to fund their businesses. Firms in Europe and Latin America, on the other hand, either want to continue holding onto their cash as a liquidity buffer or simply don't have excess cash to spend.

DEFLATION IN EUROPE: About one-third of European CFOs believe that deflation is already or soon will occur in the Eurozone and two-thirds of these firms believe that deflation will continue for two or more years. Most see the effects of deflation as damaging to the economy. These findings are particularly surprising because last week's rate cut by the European Central Bank (ECB) had been widely anticipated at the time of the survey, implying that ECB's actions thus far will not be sufficient to stave off deflation.


More detailed results are available at http://www.cfosurvey.org".

[Old Tusk]

When we were on the gold standard we were constantly cycling between inflation and deflation. It kept values and prices stable.  Remember, in general inflation is good for the wealthy while deflation is good for the poor. Once freed from the gold standard , the Fed was free to ere on the side of the wealthy. Before we bounced between 1%inflation and 1% deflation. Now they act like 1%deflation would be economic death.

[HawgWild]

Some may find interesting.  The last paragraph regarding deflation is interesting.  Perhaps the economists on here can straighten me out but I'm under the belief that deflation is one of the more serious conditions an economy can face. 

I'll let you know after I complete Stanford's Economic class this summer 
http://online.stanford.edu/course/principles-economics-Summer-2014

[john c]

A short article on deflation.

http://mises.org/daily/4618