CFOs Increasingly Optimistic About Economic Growth
This Contributed Column is brought to you by the International Economic Development Council's 2015 Annual Conference. Join the largest international gathering of economic development professionals in the world. Click here to learn more about this important event.
Posted by Heidi Schwartz
A new survey from TD Bank reveals a surge in both economic optimism and capital spending plans among middle market and large corporate finance executives.
According to TD Bank’s fourth Annual CFO Survey, nearly 60% of respondents are optimistic about U.S. economic growth this year, compared to 46% last year, and half expect to increase capital expenditures due to stronger revenue growth. Among the CFOs surveyed, the top areas for increased spending include technology (64%), existing facilities (42%) and workforce hiring (40%) in 2014. The percentage of respondents who intend to hire additional workers rose significantly over 2013–nearly a 15% jump.
“The increased appetite for capital investments confirms our view that businesses are finding ways to thrive in the ‘new normal’ economy,” said Greg Braca, Executive Vice President and Head of Corporate & Specialty Banking at TD Bank. “Increased spending at the corporate level bodes well for the long-term acceleration of growth and M&A, with companies recognizing that now is a great time to make a move before interest rates creep higher.”
Middle Market Sees More Potential for Growth
Eighty-one percent of respondents expect their companies’ revenues to increase in 2014, a 10% increase from 2013, with the majority anticipating relatively small increases in the 1–9 % range. Middle market finance executives reported they’re more optimistic than their corporate counterparts with regard to revenue increases:
- 17% of middle market CFOs anticipated a revenue increase of 10-14%, compared with 10% of corporate CFOs
- 16% of middle market CFOs anticipated a revenue increase of 15% or more, compared with 14% of corporate CFOs
More than two-thirds of respondents currently have cash holdings stockpiled, but less than a quarter intend to put the funds to use as part of their business strategy this year. Most companies plan to hold the cash into next year at least.
Despite Optimism, Concerns Linger
Although the majority of finance executives surveyed are optimistic about the outlook for the U.S. economy and their own companies, government regulation, and political gridlock over the budget deficit and tax policy, continue to top their list of concerns:
- Government regulation (22%)
- Competitive environment (22%)
- Political gridlock over U.S. budget deficit and tax policy (15%)
- Global volatility (14%)
- Cost of doing business (10%)
“While there’s still unease about the business environment, CFOs are much less concerned than they were even just a few years ago,” said Fred Graziano, Executive Vice President and Head of Regional Commercial Banking for TD Bank. “Only the competitive environment was viewed with increased concern over 2013, but that’s a good thing. Competition exists because the overall business climate has improved, which the Fed has confirmed by seeking to raise interest rates sooner than initially expected.”