In the numbers

The Bank of America recently released its 10th annual survey of manufacturing company chief financial officers. This research provides a better understanding of how CFOs view the United States and world economy. It also serves as a useful gauge concerning the outlook for revenue, financing, merger and acquisition activities, and involvement in foreign markets.

Results for the 2008 CFO Outlook came from phone interviews by an independent market researcher from 6 to 8 August 2007. The 601 respondents were top financial decision-makers at US manufacturing companies with annual revenues between $25 million and $2 billion. How do they view the economy today, and what do they think the future may bring?

Eighty-three percent of the US CFOs conduct business internationally, down from 87% in the last CFO Outlook. Compared to last year, fewer companies are selling to foreign markets (64% versus 71%), buying from foreign suppliers (62% versus 75%) and maintaining operations outside the US (39% versus 42%).

However, 71% of companies that sell to foreign markets expect sales to rise in 2008, compared to 64% in the last survey. Anticipated foreign expansion markets are scattered around the world. Some 57% of the CFOs expected to expand in Asia, 54% in Europe, 30% in Latin America and 25% in Canada.

Among manufacturing companies with operations in foreign countries, 53% report plans to expand in 2008. Only 8% of companies without foreign operations plan to establish them in 2008.

The CFOs continue to have a positive view of the current state of the US economy. On a scale ranging from an abysmal 0 to a euphoric 100, they give the economy an average score of 64, compared to last year's 67.

Forty-four percent of CFOs believe the US economy will expand in 2008, down from 55% last year. This represents the lowest level of optimism in six years.

Only 22% of CFOs believe the US economy will outperform the world economy in 2008. This is a significant decline from 39% in 2007, 46% in 2006, and 58% in 2005.

Although 54% consider oil prices as having the biggest potential impact on the US economy, up from 33% last year, the housing market tops the list as the greatest concern of CFOs at 56%. Last year, only 13% said the housing market was the greatest concern.

For the manufacturing sector, 39% forecast no change in 2008, with the remaining CFOs evenly split between expansion and contraction at 30%. This is a little more pessimistic than the previous survey when 26% of CFOs forecast expansion and 35% forecast contraction.

The CFOs' expectations for revenue growth remain healthy at 70%, up from 68%. Thirty-two percent of CFOs anticipate their level of capital expenditures to increase, the lowest percentage in four years.

The top three financial concerns shared by CFOs are the cost of materials, excluding energy (74%), healthcare costs (71%) and energy costs (65%). Fifty-eight percent of the companies are considering financing in 2008, with the top reason being capital expenditures (34%), working capital (29%), US expansion (20%) and acquisitions (18%).

For the second straight year, 56% of CFOs expect their labour costs to increase in the coming year. Also, 56% expect to increase product prices this year, down from 60% in the last survey.

Twenty-three percent of manufacturing CFOs expect to participate in a merger or acquisition in 2008, up slightly from the 20% reported last year, but down from 30% the previous year.

Regardless of how economic developments play out in 2008, SC&RA will continue to provide the information and services members need to help enhance their profits.