Wednesday, July 6, 2011


Regular readers know that the Goatmug Monthly Macro Updates tend to be comprehensive, (ok long), and as the author of the posts I love it because the data helps me forge a picture of the broad economy and this allows me to craft a longer term view of the direction of the markets.  Usually, I don't miss a beat, but somehow a section was deleted from the June Monthly report last month.  This section covered the latest release of the Duke University / CFO Magazine CFO Global Outlook Survey.  Sometimes these mishaps are to our benefit as I would not have had the chance to review the report as closely, so let's make the most of the fumble!


In the latest series of responses from CFO's we find that they are less optimistic about their own firms and less excited about the prospects for the economy.  Before we declare a confidence crisis here it is important to note that these numbers are about the same as last year and simply slight declines from the previous quarter. 

Concerns for the financial leaders of business organizations include; high oil prices, a lack of skilled workers to fill open positions, and a generally soft economic environment.  Overall, CFO's expect earnings and capital spending to grow around 8% next year.  These estimates are down a bit from last quarter, but still quite strong. 

There just seems to be nothing that will take us off a 9 handle when looking at unemployment.  CFO's responded that they believe that unemployment in the US will remain at 9% through next year.  Despite the bleak outlook, financial chiefs in energy, tech, and retail/wholesale all reported that they are hiring actively.  So, if you are in sales, accounting, product development, or an engineer, you have some hope!

Asian Financial Officers were more positive than last quarter, however there was one item that we need to note carefully.  For the first time in the history of the CFO Survey, Chinese respondents reported figures that were less optimistic than their counterparts in other parts of Asia.  Chinese CFOs are reporting that they are concerned about government regulations and policies along with the issues of weak consumer demand and pricing pressures. 

Eighty percent of European CFOs think Greece will default on its debt within one year unless additional financial aid is provided. Only one-third think current proposals to extend maturity and reduce interest rates are sufficient. If Greece defaults, 42 percent of European CFOs think it is likely that Spain will need a bailout to avoid default.

Nearly half of European CFOs believe a Eurozone country will experience an economic depression due to recently enacted severe austerity programs.

Wow!  Did you catch that?  If Greece defaults Spain is up.  Well, this is not a surprise, although I think that their attention is misplaced as I think that Greece is frankly a mouse in the room and it has everyone's attention.  Instead these CFOs need to be looking at the huge elephant in the room named Italy that is about to be a big problem. 

Further, if austerity programs gain traction we'll see an economic depression, why haven't we heard this?  Isn't the kindly IMF, ECB, Fed, and World Bank aware that smart business leaders think that financially crushing economies might be bad for the larger economy of Europe?  Don't these bankers have concern for the markets?

In summary, the CFO Survey shows some mild erosion in confidence in the economy.  There is a desire to hire qualified applicants in about 20% of firms, however the trick is that few potential employees are skilled.  I get the sense that this quarter is an indication of just how fragile the situation really is in the USA and abroad.  If high oil and gas prices prove to be "less than transitory" we could see next quarter's outlook by company leadership to drop significantly.  If price inputs fall, there is a chance that companies could gain some traction.  In general, the CFOs are saying things are less good, but not that bad.  Let's hope for less bad and more good, but we need falling commodity prices and a boost in consumer demand now to make a difference.


Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at