American chief financial officers (CFOs) are more optimistic about US economic growth than they were a year ago and expect their companies’ sales to increase in 2014, with growth coming from doing more business with current customers and winning new customers, according to the Bank of America Merrill Lynch (BofA Merrill) 2014 CFO Outlook survey.
Nine out of 10 CFOs said they expect their companies to increase or maintain the size of their workforce next year, although optimism is tempered by lingering concerns about healthcare costs, which CFOs cited as having the biggest potential impact on the US economy. Yet, most CFOs said their companies are mostly or completely ready to comply with the Affordable Care Act.
The survey was conducted for the bank by Granite Research Consulting, which interviewed 751 CFOs, finance directors and other executives selected randomly from US companies with annual revenues of US$25m and US$2bn. Of these participants, 54% said their companies’ 2014 sales will be higher than in 2013 while 37% expect sales to remain static and 8% expect a decline.
Related to those expectations, 94% of CFOs said their companies plan to implement at least one growth strategy in 2014. Of those CFOs, 82% expect to sell more products or services to current customers, while 77% are targeting new customers or markets.
“Middle-market companies are increasingly exploring different paths to growth, from creating deeper relationships with existing customers to entering new markets that have great potential,” said Alastair Borthwick, head of global commercial banking at BofA Merrill.
When asked about potential negative impacts on the US economy, 67% of CFOs named healthcare costs as a significant concern, followed by the effectiveness of the US government (62%) and the US budget deficit (57%).
Despite concerns about healthcare costs, nearly three in four CFOs said their companies are completely or mostly ready to comply with the rules and regulations of the Affordable Care Act, with 28% saying they are completely ready and 46% mostly ready.
Fifty-three percent of executives said their companies’ labour costs will increase as they comply with the Act, with 77% of those CFOs saying their companies will increase healthcare costs per employee to offset those costs. Other measures to offset higher labour costs include cutting spending in other areas of their business (75%), implementing preventative healthcare programmes (71%) and raising prices on products and services (63%).
Economic and international activity
CFOs gave the US economy an average score of 53 out of 100, up from 49 a year ago; in the 2013 CFO Outlook Mid-Year Update – a smaller survey with 250 respondents – the score was 58. CFOs gave the global economy a score of 50, up from 45 a year ago and comparable to the mid-year score of 51.
Regarding economic growth, 47% expect expansion in 2014, up from 39% a year ago. In the mid-year update, 55% forecast growth. Only 12% said they expect the economy to shrink, down from 24% a year ago and similar to 10% at mid-year.
US companies continue to remain active globally, with more than half of CFOs saying their companies do business in non-US markets. Among those companies doing business internationally, just over half generate more than 10% of their revenues from international sales or operations, and more than 90% of CFOs said their revenues from international sales or operations will increase or remain the same in 2014.
Other key findings
CFOs remain optimistic about avoiding personnel cuts, with only 7% projecting layoffs for full-time employees. By comparison, 47% expect to hire additional employees, and 43% forecast no changes to the size of their workforce. Those numbers all are comparable to the mid-year survey.
Other findings in the 2014 CFO Outlook include:
- Nearly two-thirds of CFOs said their companies will comply with the requirements of the Affordable Care Act by keeping their existing healthcare plans. Thirteen per cent expect to offer a slimmed-down version of current benefits and shift more costs to employees, and 11% expect to increase the deductibles associated with their existing healthcare plans.
- Regarding capital expenditures, 43% of CFOs expect those to remain steady at their companies, while 34% expect to spend more and 21% forecast less spending.
- On personnel, 37% of CFOs expect their companies to outsource work to contract employees in 2014. The top reasons for outsourcing were insufficient availability of qualified workers (39%) and uncertainty about rising healthcare and insurance costs (27%).
- One-fourth of CFOs said they expect their company to acquire another company. Of those executives, most expect to acquire a competitor rather than a supplier or distributor.
- Research and development budgets are expected to remain stable, with 19% expecting an increase in expenses and 8% expecting a decline.
The US money market fund reforms came into effect in 2016 and are already dramatically shaping US fund industry with investors flooding out of prime funds and into government securities. While the reforms are similar, they are not the same. GTNews interviews Yeng Bulter, global head of the cash business at State Street Global Advisors on the differences.
The top five sectors Asian fintech investors are interested in are data analytics, blockchain, lending, payments and regtech, according to Gary Hwa, EY regional managing partner.
On the third day of the Singapore Fintech Festival conference, there was a focus on specific applications of fintech innovation. One was trade finance, which is clearly is ripe for a revolution.
Kicking off day two of the Singapore Fintech Festival, Deloitte Chairman David Cruikshank said that fintech is significant for three reasons. First, customer expectations of services are higher than ever. Second, barriers to entry are lower than before. And finally, financial institutions (FIs) face a threat of what a competitor might do.