January 12, 1998



Chris Allen Cabell Smith

Financial Executives Institute The Fuqua School of Business

(973) 898-4658 (919) 660-7722





DURHAM, N.C. – Sixty-three percent of top U.S. corporate financial executives expect the recent turmoil in Asian markets to have no effect on their firms’ profits over the next four quarters, according to the most recent Financial Executives Institute / Duke-Fuqua School of Business Corporate Outlook Survey. Of the 37 percent of executives who expect their earnings to be affected by the Asian crisis, the average change in earnings is expected to be only five percent.


Only 16 percent of the executives expect to experience downward pressure on the prices of their products due to the Asian situation. "Overall, top financial executives at U.S. corporations do not expect the Asian crises to derail the continued robust growth in the U.S. economy NOR to lead to deflation," says John Graham, Fuqua professor of finance and director of the survey. Graham notes, however, that fully one-third of manufacturing companies expect to feel increased price pressure from Asian competition. Adds FEI Chairman William U. Parfet, co-chairman of MPI Research of Mattawan, Mich., "CFOs seem to be convinced that inflation is well in hand, although they stop short of predicting deflation anytime soon."


Wages and prices

The executives say that they will increase the wages of their employees by 3.8 percent in the coming year. However, these wage increases will not be fully reflected in the prices of their products. Fifty-five percent anticipate increasing the prices of their products during 1998, with an average price increase of 2.2 percent forecast across all firms. Graham cites continued improvement in worker productivity, as well as international price competition, as the factors allowing workers’ salaries to increase at a rate higher than the rate of product price increases.


The anticipated growth is wages is relatively consistent across industries, although the retail and wholesale industries expect wage increases of only 2 percent, while the manufacturing sector anticipates wage inflation of 4.2 percent.



1998 should be another year of continued strong employment growth in U.S. companies. Sixty-five percent of the financial executives polled in the FEI-Duke survey expect their companies to increase the number of their employees, while only 15 percent expect their employment rolls to decline. This employment outlook is slightly less optimistic than the previous quarter (before the Asian crises began), when 68 percent of firms expected increases in their workforces, but is still very strong by historic standards. More than three-fourths of companies in the communications, media and financial sectors of the economy expect to increase their number of employees, while only half of retail and wholesale firms expect to do so.


Restructuring and Capital Expenditures

The survey results indicate that the torrid pace of merger and acquisition (M&A) activity, which has recently been at an all-time high, will continue in the coming year. "In the past few years we have witnessed a refocusing of corporate America," according to Graham, "with firms splitting off divisions not related to their core business, while at the same time acquiring firms within their industry." He adds that merger activity will slow slightly in 1998 but remain at very strong levels, with 42 percent of firms expecting to increase their M&A activity, in comparison to 45 percent at the time of the last survey.


According to the survey, firms expect to dramatically slow their capital expenditures in 1998. The capital investments index (percent of firms increasing capital expenditures minus percent of firms decreasing expenditures) stands at 46 percent, the lowest value in the past two years. In particular, firms with substantial foreign exposure (at least half of sales in non-U.S. markets) have an index value of 20 percent.


Profitability and Revenues

The survey indicates that financial executives anticipate broad growth in corporate profits. Eighty-four percent of the executives polled expect corporate earnings to be higher over the next four quarters than they were over the previous four quarters. This is the second highest level in the survey’s history. However, this figure has dipped slightly since October 1997 (prior to the Asian crisis), when 88 percent of the executives forecast earnings growth. Approximately 84 percent of the executives expect sales revenues to increase in 1998.


With price/earnings ratios in the stock market at or near all-time highs, many financial economists feel they are not sustainable and fear that stock prices will fall. The newest FEI-Duke survey paints a different picture, however. "The vast majority of CFOs surveyed believe that profits will increase enough in the near term to bring price/earnings ratios back in line with historical averages," according to Graham.


By region

Ninety-five percent of the executives in the Southern United States expect sales and earnings to grow in 1998, indicating that executives of Southern-based firms have the most optimistic outlook. By comparison, only 65 percent of the executives of in Western and Northern-Atlantic firms expect their firms’ sales and earnings to increase in 1998, "perhaps because these firms have greater exposure to Asian markets," notes Graham.


With respect to employment and capital expenditures, the executives of firms headquartered in the Southwest are most optimistic, with 70 percent expecting to increase the employment roles and 60 percent expecting to increase capital expenditures.



The survey conducted by FEI and Duke’s Fuqua School of Business polled a broad cross-section of financial executives from 3,000 U.S. companies during the week of December 22, 1997. Complete survey results are available on the Internet at:



About FEI and Fuqua

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.


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.