October 5, 1998



Chris Allen Mark Panus

Financial Executives Institute Duke University

(973) 898-4658 The Fuqua School of Business

callen@fei.org (919) 660-2903






DURHAM, N.C.—Third-quarter earnings in 1998 will be 5.2% higher than last year’s third-quarter earnings, according to 306 CFOs surveyed in the latest Financial Executives Institute / Duke University Corporate Outlook Survey. Among companies with at least $1 billion in annual sales, earnings growth would have been approximately 7.2% without the financial crises in Eastern Asia and Russia.


"Earnings growth slowed notably in the third quarter of 1998," notes Duke University finance professor John Graham, director of the survey. Earnings over the past 12 months (October 1997 through September 1998) will increase 12% over previous-year levels (October 1996 through September 1997), according to the survey.


If consumer spending drops by as much as 10% in the coming year, the CFOs expect earnings growth to come to a screeching halt. The average company will have earnings growth of only 1.6%, with smaller companies having near-zero earnings growth. Across industries, retail/wholesale and manufacturing would be hardest hit by reduced consumer spending, with no appreciable growth in corporate earnings.


Stock market could drop, especially if Clinton resigns

CFOs predict that stock prices will decline this year, with the consensus being that the Dow Jones Industrial Average will close at about 7600 on December 31, 1998. Executives in the communications/media, high-tech, and banking/finance industries are the most pessimistic, expecting the Dow to end the year between 7000 and 7300. Executives in the south central U.S. are most optimistic, expecting the Dow to close at nearly 8000.


"The outlook is pessimistic if President Clinton is forced from office," says Graham. "Two-thirds of executives expect a negative reaction by the stock market if Clinton resigns, with 59% saying the reaction will be moderately negative and 7% saying severely negative." Another 20% of the CFOs say the stock market will not react to a Clinton resignation, while 14% say the market reaction will be positive upon Clinton leaving office.




Page 2 – FEI/Duke Corporate Outlook Survey


Greenspan must have been listening

To most CFOs, the Fed’s decision to lower interest rates was right on target. Seventy percent of the CFOs surveyed say that the Federal Reserve Bank should lower interest rates (41% said interest rates should be lowered by one-quarter percent, while another 29% say rates should be lowered by one-half percent or more). Another 29% of the executives say rates should not be changed, with the remaining 1% thinking interest rates should be increased. Survey director John Graham notes that among companies most likely to have been hurt by the recent international crises (i.e., firms with foreign sales accounting for over half of revenues), 77% of the surveyed executives say interest rates should be reduced.


Economic growth to rebound in 1999

In general, the executives anticipate that their companies will perform better in 1999 than they have in 1998. For example, 68% report earnings growth in the past year, while 79% predict earnings growth in 1999. Likewise, 71% report increased sales in the past year, while 82% predict increased sales in 1999.


Employment growth could abate somewhat in 1999, although remain positive. Sixty-one percent of the surveyed firms report that they increased their number of employees in 1998. In 1999, 56% expect to increase their number of employees, while 22% expect to decrease employment.


By Region

The south central U.S. could be the fastest growing part of the country in 1999, with 87% of CFOs from south central firms expecting earnings growth and 71% planning to increase their number of employees. In contrast, only about half the firms in the Mountain and Midwest regions expect to increase employment, while as many as one-quarter plan to reduce their number of employees.


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. The current survey was conducted during the week of September 14, 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.