Duke CFO Global Business Outlook

CFO Survey: Trump Win Boosts Business Optimism

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Note: Watch Professor John Graham discuss the results: https://www.youtube.com/watch?v=pX2WmF4j8sM. You may embed this video in your website or blog. Names of CFOs who took part in the survey and agreed to speak with media are available by request.


DURHAM, N.C. -- U.S. CFOs are much more optimistic about the U.S. economy following the election of Donald Trump, particularly with respect to regulatory and tax reform, a new survey finds. But many companies are still waiting to see the details before taking specific actions.

For the last five quarters, the Duke University/CFO Global Business Outlook Optimism Index has hovered around the long-term average of 60 (on a 100-point scale). This quarter, post-election, the index jumped to 66, the highest level in nearly a decade. The proportion of CFOs becoming more optimistic outweighs those becoming more pessimistic by 4 to 1. Historically, a jump in the optimism index has predicted strong employment growth and rising GDP over the next year.

"In contrast to the Trump jump in economy-wide optimism, own-firm optimism only increased slightly this quarter," said John Graham, a finance professor at Duke's Fuqua School of Business and director of the survey. "We've seen this pattern before, such as when Prime Minister Abe was elected in Japan and when Dilma Rousseff was forced out in Brazil. The CFOs are telling us that they anticipate pro-business policies to be enacted in the near future – but until specific policy details are known, many are waiting to see how their own firms will navigate the new terrain."

CFOs list regulatory requirements as a top business concern. Hopes for regulatory reform, as well as corporate tax reform, are two prominent sources for increased business optimism. Companies in the financial, health care, transportation, and retail/wholesale industries are most optimistic. Concerns in the U.S. include regulatory requirements, economic uncertainty, difficulty finding and retaining skilled employees, and the cost of benefits. Health care costs are expected to rise by 6.8 percent and wages by 3.2 percent over the next year.

The survey of nearly 1,000 senior finance executives ended Dec. 2. The Global Business Outlook has been conducted for 83 consecutive quarters 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.

Most U.S. companies support an interest rate hike by the Fed but don't expect it to affect their spending plans. CFOs supporting a rate hike outnumber those opposed by a 2-to-1 margin.

"CFOs are supportive of the need to return to normal interest rates," said Fuqua professor Campbell R. Harvey, a founding director of the survey. "Though Fed hikes are widely anticipated over the next year, over half of CFOs do not believe that their borrowing costs will increase in 2017. Overall, they expect average interest expense to increase by only 30 basis points. This relatively minor increase should not deter capital investment or hiring plans. Indeed, rates have already increased. The Fed is following the market – not leading."

U.S. firms plan to increase their payrolls by 2 percent in 2017 and expect a median increase in capital spending of 2 percent. While modest, spending is up from last quarter's prediction of no growth.

The corporate sector faces increased financial risk due to a recent increase in borrowing.  U.S. manufacturing firms increased their borrowing as a percentage of assets by one-third over the past five years; and energy firms levered up by two-thirds. More than 60 percent of the firms in these industries say that this high debt load will limit future corporate investment.

"Weak business spending has dampened economic growth during the past two years," Graham said. "Finance chiefs tell us that any rebound in business spending will be muted because of debt loads at many firms that are already high."

Few CFOs see themselves being promoted to CEO. Around the globe, about one-in-five CFOs believe that they will be promoted to CEO in the next 5 years. African CFOs think they are most likely (27 percent chance) to be promoted to CEO, in contrast to only 15 percent of Canadian and European CFOs.

About two-thirds of CFOs say they believe that being CFO adequately prepares them to be a CEO in the future. The finance chiefs say that adding the following skills would help prepare them even more: operational and product experience, leadership training, broad economic vision, and sales, marketing and strategy experience.

While the election of Donald Trump increased business optimism in the U.S., it had the opposite effect in Mexico, where optimism fell 16 points to only 47 out of 100. Canadian optimism fell one point to 63 this quarter.

The optimism index in Europe increased one point to 57 this quarter. Wages should increase by 1.2 percent over the next year, and employment by 0.4 percent. Top European concerns include economic uncertainty, government policies, regulatory requirements, weak demand, currency risk, government policies and attracting qualified employees. More than half of European CFOs say that high corporate debt loads will crimp business spending plans.

Asian optimism averaged 59 out of 100 this quarter, ranging from 30 in Malaysia to 45 in Singapore, 54 in Japan and 70 in China. Indian optimism fell from 65 to 52 this quarter. Two-thirds of Asian CFOs indicate that high corporate debt levels will dampen capital spending, though capital spending should still rise by an average of about 3.2 percent over Asia. Capital spending will fall in Japan.

Wages should rise by nearly 6 percent in Asia, with growth of 3 percent in Japan versus 7.6 percent in China. Full-time employment will rise 6 percent in Asia. Top concerns include economic uncertainty, weak demand, government policies, difficulty attracting and retaining qualified employees, and currency risk.

Twenty-seven percent of Chinese firms believe that new anti-corruption measures will improve competitiveness among Chinese firms; however, nearly half say that the measures have caused Chinese firms to become too cautious. Sixty-four percent of Japanese firms say that the new corporate governance code has had a positive effect on their companies, though only 35 percent say it has improved competitiveness.

African optimism remains at 46 this quarter, ranging from 45 in South Africa to 49 in Nigeria. Capital spending will rise by about 4.2 percent on average, and wages should increase 7 percent over the next 12 months. Fulltime employment will fall in South Africa. African CFOs are worried about economic uncertainty, government policies, currency risk, and the volatility of the political situation (especially in South Africa).

Nearly 70 percent of African CFOs say that corporate indebtedness is leading to greater than normal financial risk in the corporate sector, and about three-fourths say this will limit business spending.

Latin American economic optimism remained low this quarter. On a 100 point scale, optimism rated as follows: Chile (41), Colombia (47), Mexico (47), and Ecuador (28). Optimism has rebounded somewhat in Brazil (57) in and remains strong in Peru (71). Averaged across Latin America, capital spending plans are up 3.3 percent, with a positive outlook in all responding countries except Mexico and Ecuador. Full-time employment is expected to increase Colombia and Peru, and fall in Brazil, Chile, Ecuador, and Mexico.

Nearly 60 percent of Latin American CFOs believe that a recent increase in borrowing has led to more financial risk than normal in the corporate sector, which will dampen future business spending.


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 83nd consecutive quarter the Duke University/CFO Global Business Outlook survey has been conducted. The survey concluded December 2, and generated responses from nearly 1,000 CFOs, including 367 from North America, 192 from Asia, 169 from Europe, 126 from Latin America and 99 from Africa. The survey of European CFOs was conducted jointly with TiasNimbas in the Netherlands (C.Koedijk@uvt.nl) and ACA, based in the U.K. The survey of Latin America was conducted jointly with Funda‹o Getœlio Vargas (FGV) in Brazil (gledson.carvalho@fgv.br, klenio.barbosa@fgv.br) and with UniversidadAndina 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 (nazeerp@saica.co.za). The Chinese survey was conducted jointly with Beijing National Accounting Institute (jiangj@mail.nai.edu.cn).

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.