This quarter, the level of optimism toward the global economy among U.S. CFOs, as well as a select number of CFOs from Europe (Italy and France) has remained steady over the previous quarter.
The third-quarter CFO Optimism Index for the global economy was 44.20 for U.S. CFOs (compared with 44.10 in Q2), and rose slightly to 45.20 among European CFOs (up two points from Q2).
However, U.S. CFO's optimism toward the U.S. economy dipped another four points to 51.60 in the current quarter (from 55.40 in Q2), while European CFOs on average surpassed the U.S. in their confidence of the U.S. economy (from 52.90 in Q2 to 55.90). U.S. CFOs optimism towards the financial prospects for their company also sunk five points from the previous quarter (67.80) to its lowest mark in more than two years (62.70). Optimism of CFOs in Europe toward their companies reached 55.70, a minor increase from Q2 (54.50).
CFOs across both regions lowered many of their projections for the next 12 months. Whereas CFOs in the U.S. stated in August that they expected a 15 percent increase in net earnings, this quarter it has been reduced to a nine percent increase.
CFOs in the EU are anticipating a two percent increase in earnings and nearly a five percent increase in revenues. Sixty-two percent of U.S. respondents and 66 percent of European respondents said their company's interest in acquisitions was unchanged relative to the previous quarter.
While the number of CFOs who felt M&A interest had increased was significantly smaller (29% in the U.S. and 24% in Europe), the amount of CFOs who experienced a decrease in activity was ten percent among EU CFOs and nine percent among U.S. CFOs. In both regions, the large majority of CFOs saw no change in their company's interest as an acquisition target.
"CFOs appear to be hunkering down in preparation for continued economic stagnation in the U.S. and Europe, as evidenced by low levels of optimism about the economy," said Linda Allen, professor of economics and finance at Baruch College’s Zicklin School of Business. "The survey suggests that the CFOs expect a delay in the U.S. economic recovery to 2014 due to three major areas of concern: first, uncertainty about European stability and the fiscal cliff in the U.S., second, high employment costs, with 93% of U.S. CFOs expecting increased employee healthcare costs, and third, weakening revenue and earning expectations, resulting in reduced growth and acquisition opportunities."
When asked about their plans for hiring, 58 percent of U.S. CFOs stated that they plan to hire additional staff in the next six months, while about a third (35 percent) have no plans to hire. On the contrary, European CFOs are split on their plans, with 47 percent planning to hire, and a similar amount (45 percent) intending to halt hiring for the next six months. Of those that are hiring, CFOs are primarily seeking mid-career professionals (54 percent in the U.S.; 42 percent in the EU) and experienced and skilled technical workers (44 percent in the U.S.; 46 percent in the EU). This only varies slightly in Europe. While U.S. CFOs stated that they are also looking for entry level college graduates (49 percent), EU CFOs were seeking more entry level high school graduates (42 percent).
While CFOs are cautious in their prospects for hiring, they revealed some success in retaining the workforce they currently have. The majority of CFOs in the U.S. and Europe have not been forced to reduce headcount over the past 12 months (69 percent in the U.S. and 56 percent in Europe).
For the third of CFOs who had to make headcount reductions, on average they lowered their staff by 13 percent in the U.S. and 10 percent in Europe. A decline in sales was the main reason attributed to this reduction. As CFOs take specific actions in the current environment to retain their current talent, CFOs in the U.S. are paying significant attention to training and development (46 percent), compensation, and ensuring opportunities for career advancements (38% each).
Training and development is also a top area of focus for European CFOs (42 percent), followed by office atmosphere (33 percent) and team building (29 percent).
This quarter, CFOs remain very concerned over the fate of the Eurozone. When asked to rate their concern on a scale of one (not concerned) to five (very concerned), U.S. CFOs (93 percent) selected a "three or higher," and 81 percent of CFOs in Europe expressed identical concern. This remains consistent with their level of concern at the start of the year. CFOs were tentative to predict an outcome of the latest efforts by the ECB and the EU member states to solve the Euro crisis (53 percent of CFOs in the U.S. and 37 percent of CFOs in Europe believed it was "too early to tell").