Capital Spending to Increase; Employment to Accelerate

The most recent Duke University/CFO Magazine Global Business Outlook Survey noted that optimism among U.S. and Asian chief financial officers jumped this quarter and the hiring outlook is strong for 2012. European CFOs also say 2012 will be an improvement over a difficult 2011. 

These are some of the findings of the most recent quarterly survey, which asked 873 CFOs from a broad range of global public and private companies about their expectations for the economy. 

The U.S. CFO Optimism Index, in which CFOs rate their confidence in the economy on a scale of 0 to 100, increased from 53 last quarter to 59 this quarter, equaling the index's long-term average. 

"This rebound is encouraging because increases in CFO optimism have historically preceded improvements in the overall economy," said John Graham, a professor of finance at Duke's Fuqua School of Business and director of the survey. "Optimism also rebounded in Europe and Asia, suggesting that 2012 should be a better year than 2011. Still, European optimism lags behind the rest of the world." 

The following summary of findings was excerpted from the report: 

U.S. finance chiefs said they plan to increase capital spending by slightly more than 7% and expect to boost tech spending by 6% over the next year. Capital spending growth will be especially strong in the energy and manufacturing sectors. 

U.S. CFOs said they plan to expand their workforces by slightly more than 2% on average over the next 12 months, a staffing increase that would bring the unemployment rate below 8%. Sixty-eight percent of U.S. CFOs say they are actively trying to fill vacant job positions, and many firms are recruiting more aggressively to fill the slots. 

Nearly 40% of U.S. CFOs say their firms will be active in mergers and acquisitions this year. 

U.S. Companies Keeping Business At Home

U.S. companies, facing slowing markets and rising costs around the world, are taking a new look at their home market.

With growth slowing in China and a slump gripping much of Europe, companies are adding capacity in the U.S., replacing aging equipment and even moving overseas production back from low-cost labor markets, a sign that corporate America could be poised to take a bigger role in the economic recovery.

Union Pacific expects to buy twice as many locomotives this year, spending upward of $400 million.

The pace of earnings growth at companies slowed in the fourth quarter, and there are signs that profitability is falling. That is prompting companies ranging from beverage maker Coca-Cola Co. to industrial supplier Emerson Electric Co. to disclose cost cuts. But after keeping a tight lid on costs for the past few years, many other companies are expanding capacity to meet rising demand.

United Rentals Inc., the world's largest equipment rental company, plans to increase its capital spending by about a third, to $1 billion, this year as more construction and industrial companies opt to rent rather than own equipment like elevated forklifts and backhoe loaders. Cummins Inc., which makes engines for trucks and heavy equipment, is boosting its capital spending to more than double the rate of two years ago.

"It is an environment that feels like it is building momentum," William Plummer, United Rentals' chief financial officer, said in an interview. "We are coming out of the depths of the recession and are starting to build momentum on the upside."

U.S. businesses increased their investments in December. According to the Commerce Department, new orders for nondefense capital goods excluding aircraft, a proxy for how much companies spend on equipment, climbed 2.9% from November. That ended two months of declines, suggesting businesses are becoming more confident. Compared with a year earlier, companies shipped 9% more.

There are signs that hiring may be picking up as companies expand facilities. Job growth in January was its highest level since April, with unemployment falling for the fifth consecutive month.

Source:  WSJ.com