Contact: Mark Panus, Duke-Fuqua, (919) 660-2903 or Chris Allen, FEI, (973) 898-4658

DURHAM, N.C., June 28 — A new poll of 321 companies indicates that the economy will continue to grow at a good pace for the rest of 1999. The results are from the latest Financial Executives Institute/Duke University Corporate Outlook Survey, conducted the week of June 14. The CFOs who responded to the survey expect earnings growth to average 12.9% for 1999 (median earnings growth of 10%). This is down slightly from the prediction of last quarter's survey, when earnings growth of 15% was predicted. "The small reduction in earnings growth probably occurred because it is now widely believed that the Federal Reserve Bank will increase interest rates by 1/4% in the near term," says Duke University finance professor John Graham, director of the survey.

"The economy will slow to a standstill, however, if interest rates increase by 1% or more," continued Graham. "We asked the executives what they expect their earnings to be if the Fed raises rates by between 1% and 2% during 1999. Under this scenario, earnings are expected to shrink by 10% during 1999, averaged across all firms. The median firm would have zero growth in earnings in 1999 if interest rates increase by 1% to 2%."

Last quarter's Corporate Outlook Survey accurately predicted 15% earnings growth for the year, which is in line with actual earnings growth of approximately 4% for U.S. firms in the first quarter. "CFOs remain confident about earnings prospects," notes FEI President and CEO Phil Livingston. "Seventy-one percent expect earnings to increase in this year over last, while just 21% expect earnings declines."

Other findings from the FEI/Duke survey include:

• 46% of firms expect to increase capital spending in 1999, with a mean increase of 11.5% (a median change of 5%).
• If interest rates increase by 1% to 2%, capital spending will decrease by 7% in 1999 (a median change of 0%).
• 60% of firms would like to increase employment in 1999, with a 3% median increase in number of employees.
• If interest rates increase by 1% to 2%, firms expect to decrease their number of employees by an average of 5% in 1999 (a median of no change in number of employees).

• Because of low unemployment, 46% of the firms say that they would pay a wage premium of 5% to hire the right employee, and another 40% say that they would pay a 10% premium.
• 6% say that they would pay a 15% premium, and 3% say they would pay a 20% wage premium to hire the right employee. Only 4% of the respondents say that they would not pay a premium to hire the right person.

• 43% of the CFOs say that the budget surplus should be used to reduce the national debt.
• Another 37% say the surplus should be used to reduce taxes, and 27% say it should be applied to the Social Security shortfall. (These numbers add to more than 100% because CFOs could check more than one box.)

• The median firm expects output per employee to increase by 3% in 1999.
• The high-tech industry expects productivity growth of 6.5%. Manufacturing firms expect 4.2% improvement.

• Overall, executives expect the prices of their products to increase 1.4% in 1999. This represents a small increase over the 0.8% increase in prices that was expected at the time of last quarter's survey.
• Small firms expect price increases of 1.8%, but firms with sales over $1 billion expect no change in prices.
• Firms with at least 25% of revenues coming from foreign sales expect the prices of their products to decline by 1/2%, likely the result of intense foreign competition.
• Firms with no foreign sales expect price increases of 2.6%.

• Overall, wages are expected to increase by 4.7% in 1999.
• High-tech firms expect wages to increase 7.8%, in contrast to an increase of 3.3% in transportation/energy.
• Wages will rise by 7% in the Pacific region, and by 6.6% in the South Central region of the country.

• 95% of firms expect their health care costs to increase in 1999, with an average increase of 7%.
• Costs will rise by 7.6% for firms with sales less than $100 million, but only 3.9% for firms with sales over $5 billion.
• Firms in the Pacific region will experience the largest increase in health care expenses, with costs rising 9%.

• 71% of executives expect their earnings to increase in 1999 over 1998 levels. 21% expect earnings declines.
• High-tech firms expect earnings to increase by 26% in 1999.
• Transportation/Energy firms expect a 1.4% decrease.
• Pacific region firms predict earnings will increase 16.8%, but firms in the South Atlantic see only a 9% rise.
• If market interest rates were to increase by 1% to 2%, firms in the Pacific region predict that their earnings would increase by only 6.5% in 1999, and firms in the South Atlantic predict a 2% decline for 1999.

The survey is conducted quarterly by FEI and Duke University’s Fuqua School of Business. Each survey polls a broad cross-section of CFOs from over 3,000 U.S. companies. The current survey was conducted during the week of June 14, 1999. Complete survey results are available on the Internet at:

www.duke.edu/%7ejgraham

Financial Executives Institute is the leading advocate for the views of corporate financial management. Its 14,000 members hold policy-making positions as chief financial officers, treasurers and controllers at 8,000 companies throughout the United States and Canada. For more information, visit www.fei.org.

The Fuqua School of Business at Duke University was founded in 1970. Fuqua’s mission is to provide the highest quality education for business and academic leaders and to promote the advancement of the understanding and practice of management through research.

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