For Release April 7, 1998



Chris Allen Cabell Smith

Financial Executives Institute The Fuqua School of Business

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


Note to Editors: Complete survey results are available on the Internet at



Most CFOs Say War In Middle East Would Hurt U.S. Economy;

Only One in Five Expect Earnings and Prices To Decline Due To Asian Crisis


DURHAM, N.C. – Seventy-two percent of top U.S. corporate financial executives say a war in the Middle East would adversely affect the U.S. economy, although sixty-one percent expect that the effect would be modest, while 11% predict a strong negative effect. The results, which hold across all industries, are among the findings from the most recent quarterly Financial Executives Institute / Duke Corporate Outlook Survey.


Asian Crisis

One-fifth of the 267 responding executives expect the prices of their products to decline as a direct result of the Asian crisis. Among those who expect downward price pressure, the average price decline is expected to be 5.8% (versus what prices would be without the crisis). The retail and wholesale industry will be hardest hit, with one-third of the responding firms expecting lower prices in response to the Asian crisis, and an average price decline of 6.3%. Twenty percent of the CFOs polled also expect their corporate earnings to decline because of the Asian crisis.


"Overall, CFOs at U.S. corporations do not expect the Asian crisis to derail the continued robust growth in the U.S. economy, although it will lead to moderate downward price pressure," says John Graham, Duke professor of finance and director of the survey.


Wages and Prices

Ninety-seven percent of the executives say that they will increase the wages of their employees in the coming year, with an average increase of 4%. However, these wage increases will not be fully reflected in the prices of their products. Fifty-two percent anticipate increasing the prices of their products during 1998, with an average price increase of 2.1 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 in wages is relatively consistent across industries, although the banking/finance/insurance and communications/media industries expect wage increases of approximately 5 percent, while the mining/construction industry anticipates wage inflation of 3.3 percent.


Profitability and Revenues

The survey indicates that financial executives anticipate broad growth in corporate profits. Seventy-five percent of the executives polled expect corporate earnings to be higher over the next four quarters than they were over the previous four quarters. While high by historical standards, this figure has dipped since October 1997 (prior to the Asian crisis), when 88 percent of CFOs forecast earnings growth. Approximately three-fourths of the executives expect sales revenues to increase during the next four quarters. "CFOs continue to be bullish on growth in the U.S. economy," notes FEI Vice Chairman James J. Abel, Executive Vice President and CFO, Lamson & Sessions of Cleveland. "They see no let up anytime soon."




Page 2 FEI/Duke Corporate Outlook Survey



CFOs predict continued strong employment growth for U.S. companies. Fifty-three percent of the financial executives polled in the FEI-Duke survey expect their companies to increase their number of employees, while only 13 percent expect their employment rolls to decline. This employment outlook is less optimistic than six months ago (before the Asian crises began), when 68 percent of firms expected increases in their workforces, but is still strong by historic standards. Approximately 80% of companies in the manufacturing and banking/finance/insurance sectors expect to increase their number of employees, while only 40% of retail and wholesale firms expect to do so.


Restructuring and Capital Expenditures

The survey results indicate that merger and acquisition (M&A) activity will tail off somewhat this year, although the amount of activity will remain moderately strong. "In the past few years we have witnessed a refocusing of corporate America, with firms splitting off divisions not related to their core business, while at the same time acquiring firms within their industry," said Graham. In 1998, about 30 percent of firms expect to increase their M&A activity, in comparison to 45 percent six months ago.


According to the survey, firms expect to increase their capital expenditures in 1998. The capital investments index (percent of firms increasing capital expenditures minus percent of firms decreasing expenditures) stands at 54 percent. Firms with substantial foreign exposure (at least half of sales in non-U.S. markets) will spend less, with an index value of 41 percent.


By Region

Companies headquartered in the Pacific West portion of the U.S. could be in for an interesting year. Seventy-two percent of Pacific executives anticipate earnings growth and 74% predict employment growth. This will be combined with 5% expected wage growth and no change in the prices of their products.


About the Survey

The survey is conducted quarterly by FEI and Duke’s Fuqua School of Business. Each survey polls a cross-section of CFOs from 2,900 U.S. companies. The current survey was taken during the week of March 23, 1998.


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.