July 8, 1998



Chris Allen Cabell Smith

Financial Executives Institute Duke University

(973) 898-4658 The Fuqua School of Business

callen@fei.org (919) 660-7722







DURHAM, N.C. – Forty-one percent of U.S. chief financial officers say that it is "very hard" for their companies to hire qualified employees compared to five years ago. Another 51% say hiring is "moderately hard." Hiring difficulties are most acute for large companies; the only firms claiming that it is "fairly easy" or "very easy" to hire have less than $500 million in revenue. These results are from the most recent quarterly Financial Executives Institute / Duke University Corporate Outlook Survey.


Hiring difficulties are pervasive across industries and regions of the country. Ninety-four percent of firms in the Pacific and Northeast regions of the country find hiring very hard or moderately hard, as do 93% in the South Atlantic. Ninety-three percent of banking and finance companies find hiring very or moderately hard, as do 92% of high-tech, communications, transportation, energy, mining, and construction firms.


Firms Hiring Less Qualified Workers

"Fifty-one percent of the 476 responding executives note that their company has hired less qualified staff, presumably due to the tight labor market," says John Graham, a finance professor at Duke University and director of the survey. In particular, many in the mining/construction (63%), communications/media (58%) and high-tech (53%) industries have found it necessary to hire less qualified people. Regionally, 71% of CFOs at firms in the Mountain region of the country say they have been forced to hire less qualified employees, compared to only 41% in the Northeast.


Sharp Rise in Health Care Costs and Wages

CFOs surveyed anticipate that health care costs will increase a robust 5.8% over the next four quarters. Small companies will be especially hard hit. For example, firms with less than 1,000 employees expect health care costs to increase by 6.5%, while firms with more than 1,000 employees expect an increase of 4.9%. Mining and construction firms expect an average increase of 10.4% in health care costs, while high-tech firms expect increases of 6.1%. In contrast, banking and finance firms expect increases of only 4.2%. Graham notes that firms located in the Mountain region of the country expect health care costs to increase by a whopping 14.6%, and those in the Northeast expect an increase of 6.5%.


CFOs believe that the wages of their employees will increase by an average of 4.2% during the next 12 months. The steepest increases are anticipated for the high-tech industries (e.g., biotech, software) where salaries are expected to rise 6%. The smallest wage increases are predicted in mining and construction (3.4%), and communications and media (3.7%).


Earnings Still Growing

The survey indicates that CFOs anticipate growth in corporate profits. Eighty percent of the executives polled expect corporate earnings to be higher over the next four quarters than they were over the previous four quarters. "Confidence remains high among CFOs that corporate profits will stay strong," notes FEI Chairman James J. Abel, executive vice president and CFO of The Lamson & Sessions Company of Cleveland. While high by historical standards, this figure has dipped slightly since last quarter’s survey when 84% of the executives forecasted earnings growth, and the 88% of executives who expected earnings growth six months ago.


Prices Hold Steady; Inflation Remains Low

Even with notable increases in health cares costs and wages, firms expect to increase the prices for their products by a modest 0.4% in the coming quarter, and by only 1.7% during the next twelve months. "Intense competition and deflationary price pressures from Asia continue to help keep the lid on domestic inflation," notes John Graham, "so we may continue to experience low inflation for at least another year." High-tech companies will increase the prices of their products by 5%, while mining/construction and banking/finance only expect the prices of their products to climb by 1% in the coming year.


Dividends, Capital Expenditures and R&D

Perhaps to cope with reduced growth in earnings, notable increases in wages and health care costs, and small price increases, executives expect to reign in expenditures and dividends. Only 19% of the executives anticipate increasing dividends in the coming year, compared to 24% last quarter. Further, 16% of the firms expect to decrease dividends in the coming year, compared to only 4% in last quarter’s survey.


Fifty-eight percent of firms plan to increase capital expenditures over the next 12 months, compared to 68% in the last survey. Only one-third of the surveyed companies expect to increase research and development expenditures, compared to 42% in the previous survey.


Employment Growth Continues

Strong employment growth should continue to be the norm for at least another year. Sixty-four percent of the executives anticipate hiring more employees in the next 12 months. Seventy percent of transportation/energy and communications/media firms expect to increase their level of employment. In contrast, only 58% of manufacturing firms expect to hire more employees, and 20% expect to decrease their number of employees.


Restructuring and M&A Activity Slowing Down

The survey results indicate that merger and acquisition (M&A) activity will moderate somewhat this 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." During the next 12 months, about 41% percent of firms expect to increase their M&A activity, in comparison to 45% six months ago.


By Region

Of companies headquartered in the Pacific West, 80% anticipate earnings growth and 67% predict employment growth. This will be combined with a 1.6% expected increase in the prices of their products. "The West Coast economy continues to perform quite well, in spite of relatively strong ties to Asian economies," notes Graham, in reference to reduced export demand by Asian countries in response to the yearlong Asian crisis.


About the Survey

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, this quarter during the week of June 24, 1998. 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.