Duke CFO Global Business Outlook

CFO Survey: Political Uncertainty Slows Nearly Half of U.S. Firms; European CFOs Fear Brexit

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DURHAM, N.C. – Nearly half of U.S. CFOs say political uncertainty, fueled by the upcoming election and Washington dysfunction, is causing their companies to reduce hiring or spending plans.

The latest Duke University/CFO Global Business Outlook also measures the possible effects of Britain exiting the European Union, tightening employment and the effects of trade alliances on domestic employment.

The survey of more than 1,200 CFOs and other finance executives, which ended June 3, has been conducted each quarter for more than 20 years and spans the globe, making it the world’s longest-running and most comprehensive research on senior finance executives. Results are for U.S. firms unless otherwise noted.


Seventy-nine percent of U.S. CFOs believe that the United States economy faces moderate-to-large political risk. Political risk ranks higher in the U.S. than in Asia and Europe, though not as severe as in Africa and Latin America. The greatest sources of U.S. political risk stem from the upcoming elections, Washington dysfunction, and proposed regulations including the minimum wage.

“Companies take a big pause in the face of severe political risk, delaying or scaling down business spending plans until the risk dissipates,” said John Graham, a finance professor at Duke’s Fuqua School of Business and director of the survey. “The current U.S. political situation is contributing to weak business spending plans of only 1 percent growth in the next year, not even keeping up with inflation.”

Forty-seven percent of U.S. companies say they will pull back on spending or hiring due to concern about the political situation. Nearly 40 percent of U.S. CFOs indicate that they believe that foreign businesses are less willing to do business with the U.S. due to political uncertainty.

“Trade alliances have become a political hot potato,” remarked Graham. “While a majority (54 percent) of U.S. CFOs think cross-country trade deals are good for the country’s economy, this is lower than the approximately two-thirds of CFOs outside the U.S. that favor such alliances. On net, U.S. CFOs believe that trade alliances increase domestic employment slightly, while CFOs in other countries generally see much more growth in local employment.”

The labor market continues to tighten in the U.S., making it difficult for many companies to hire and retain qualified employees, and contributing to wage pressures.

“While the recent disappointing headline non-farm payrolls grabbed a lot of attention, our survey shows the aggregate numbers miss a crucial point. U.S. companies rate difficulty hiring and retaining skilled employees as their second biggest concern – while last year it ranked fifth,” said Fuqua professor Campbell R. Harvey, a founding director of the survey. “Business leaders plan to increase their workforce by 2 percent over the next year, which would reduce the unemployment rate to levels not seen since the late 1960s. CFOs are telling us that expected wage increases (3.3 percent) greatly outpace expected increases in product prices (1.5 percent).

“The tight labor market, combined with a skills mismatch between what companies want and what they can get, makes wage inflation inevitable,” Harvey said. “This is exactly the type of data that will energize the Fed to be more aggressive in hiking interest rates – despite the recent setback in non-farm payrolls.”


European business leaders are keeping a careful eye on whether Great Britain will vote next week to exit the European Union. CFOs in Europe assign a 42 percent probability that Brexit will occur.

The European leaders overwhelmingly are against a British exit. More than 75 percent believe it is good for the U.K. to remain in the European Union, and a like number believe it is good for companies in other European countries. Nearly 80 percent believe that a Brexit would threaten the European Union and lead to similar referendums in other EU countries.


Seventy percent of U.S. companies say that cash balances have stayed the same or increased over the past year. Forty-seven percent of companies indicate that they plan to hold on to their cash until economic uncertainty declines, or say that they need the cash as a buffer against possible liquidity shocks. Among the 53 percent of firms that will begin to spend their cash, the top uses will be capital spending, paying down debt, and making acquisitions.

“One of the more interesting findings is that most companies indicate that they have a very loose target for how much cash they hold, if they have any target at all,” said David W. Owens, editorial director for CFO Research. “This suggests that, within very wide bounds, companies accumulate cash when profits allow them to do so, using it as an internal source of funds to pay for future investment and business opportunities.”


The Optimism Index for the U.S. economy remained steady this quarter. On a scale from zero to 100, financial executives rate the outlook at 59.4, the same as last quarter and approximately equal to the long-run average. Top concerns in the U.S. include economic uncertainty, difficulty finding qualified employees, regulatory requirements, and the cost of benefits. Health care costs are expected to rise by 7 percent over the next year. Canadian optimism rebounded to 63 this quarter, up from 56 in March.

The optimism index in Europe increased to 55 this quarter, up from 53 last quarter. Wages should increase by 1.7 percent. Top European concerns include economic uncertainty, regulatory requirements, government policies, weak demand, and employee morale. About two-thirds of European CFOs rate their own country’s political risk as moderate or large, and about half of companies are holding off on spending and hiring in response.


Asian optimism averaged 57 out of 100 this quarter, ranging from 48 in Japan to 55 in China to 67 in India. Sixty percent of Asian CFOs rate political risk as moderate or large, and about half of companies are holding off on spending and hiring in response. Cash reserves in Asia will be used to invest, increase marketing, pay dividends and repurchase shares, and hire workers.

Capital spending is expected to increase by 3 percent in Japan, 9 percent in China, and about 6 percent averaged across the rest of Asia. Wages will increase 2 percent in Japan and by about 7 percent averaged across the rest of Asia. Full-time employment will decrease slightly in Japan, but increase by an average 5 percent over the rest of Asia. Top concerns include economic uncertainty, weak demand, currency risk, government policies, and difficulty attracting and retaining qualified employees.


African optimism inched up from 46 to 47 this quarter but is only 38 in South Africa. Capital spending will rise by 4 percent on average, with nearly a 13 percent increase in Nigeria offsetting a 1.4 percent reduction in South Africa. African CFOs are worried about economic uncertainty, currency risk, government policies, limited access to capital, inflation and difficulty hiring skilled workers. Cash reserves in Africa will be used to invest, increase marketing, and increase employee pay and benefits. Ninety-three percent of African CFOs rate political risk as moderate or large, the highest in the world. About two-thirds of companies are being cautious about spending and hiring in response.


Latin American economic optimism rebounded to 53 (on a 100-point scale), though the optimism index varies across countries. Optimism in Brazil increased to 55 and in Chile and Ecuador to about 45, all up from about 37 last quarter. Optimism remains strong in Mexico (65) and Peru (68). Averaged across Latin America, capital spending plans are up slightly, with a positive outlook in all responding countries except Chile. In contrast, full-time employment will fall or remain flat in every polled country in Latin America.

Ninety percent of Latin American CFOs rate political risk as moderate or large. The effect is largest in Brazil and Chile, where 90 percent of CFOs say their companies are holding off on hiring and spending due to political uncertainty. As a specific example, proposed Labor and Constitutional Reforms have significantly harmed the business outlook in Chile, with 95 percent of CFOs saying these proposals have reduced optimism about the Chile’s economic outlook and about 80 percent of firms saying these specific proposals have led them to reduce spending and hiring plans.


Detailed results, including tabular summaries of the numbers in this release and results from previous surveys are available at www.cfosurvey.org.

About the survey: This is the 81st consecutive quarter the Duke University/CFO Global Business Outlook survey has been conducted. The survey concluded June 3, and generated responses from more than 1,200 CFOs, including 626 from the U.S., 36 from Canada, 185 from Asia, 130 from Europe, 135 from Latin America and 113 from Africa. The survey of European CFOs was conducted jointly with TiasNimbas in the Netherlands (C.Koedijk@uvt.nl) and Grenoble Ecole de Management in France (Philippe.DUPUY@grenoble-em.com). The survey of Latin America was conducted jointly with Fundação Getúlio Vargas (FGV) in Brazil (gledson.carvalho@fgv.br, klenio.barbosa@fgv.br) and with Universidad Andina Simon Bolivar in Ecuador. The Japanese survey was conducted jointly with Kobe University (cfosurveyjp@people.kobe-u.ac.j) and Tokyo Institute of Technology, among others. The African survey was conducted jointly with SAICA (KimB@saica.co.za).

The Duke University/CFO Global Business Outlook survey polls a wide range of companies (public and private, small and large, many industries, etc.), with the distribution of responding firm characteristics presented in online tables. The responses are representative of the population of CFOs that are surveyed. Among the industries represented in the survey are retail/wholesale, mining/construction, manufacturing, transportation/energy, communications/media, technology, service/consulting and banking/finance/insurance. The average growth rates are weighted by revenues or number of employees. For example, one $5 billion company affects an average as much as 10 $500-million firms would. Revenue-weighted mean growth rates are provided for earnings, revenues, capital spending, technology spending and prices of products. Employee-weighted mean growth rates are used for health care costs, productivity, number of employees and outsourced employment. The earnings, dividends, share repurchases and cash on balance sheet are for public companies only. Unless noted, all other numbers are for all companies, including private companies.