In the wake of last week's news that U.S. GDP expanded for thesecond quarter in a row during the fourth quarter, a survey of CFOsprovides more evidence that the economy is beginning to mend.

CFOs' optimism about the economy rose to 56.98 in the fourthquarter, up from 54.2 in the third quarter and 41.9 in the secondquarter, according to a quarterly survey conducted by FinancialExecutives International and Baruch College. The almost 400 CFOssurveyed were even more upbeat about the outlook for their owncompanies, with that reading rising to 67.09, up from 64.1 in thethird quarter and 51.44 in the second quarter.

John Elliott, dean of the Zicklin School of Business at Baruch,says the best news can be found in the report's details. “At theend of the third quarter, we saw an improvement in sentiment, butthat improvement wasn't really supported by specificforward-looking expectations,” Elliott says. “This quarter, we sawa continuation of the uptick in optimism, but it was supported byincreased optimism about capital spending and hiring.”

CFOs are projecting an 8.89% increase in their companies'capital spending over the next 12 months, up from the 1.1% gainthey were predicting in the third quarter, and say hiring will beup 2.92% this year, vs. the 1.7% rise expected in the thirdquarter.

Elliott also notes a “significant turnaround” in the inventorysituation, with CFOs now expecting to increase inventories by 2.8%over the next 12 months, vs. the 1.9% decline in inventories theyprojected in the third quarter and the 3.08% decrease cited in thesecond quarter. The 5.9% surge in fourth-quarter GDP was drivenlargely by a decline in inventory liquidation.

The finance chiefs' outlook on revenues and net earnings alsoshowed considerable improvement. CFOs are projecting revenues willrise 9.62% over the next 12 months, up from the 5.8% gain they wereforecasting in the third quarter. And they expect net earnings toskyrocket 22.07%, vs. the 10.9% jump they were forecasting in thethird quarter.

Amid the rampant optimism, the finance chiefs surveyed are stillhesitant to declare an end to the recession. Just 9.2% now say arecovery will start in the first half of 2010, down from 27.6% whowere calling for a first-half recovery back in the third quarter.Almost half (49.2%) expect the recovery to kick off in the secondhalf of this year, and 21.9% say it will start in the first half of2011.

“It's a little slower recovery than previously expected,” saysFEI President Marie Hollein. “While things are looking better,they're still proceeding with caution.”

CFOs have good reason to be cautious, given the 10% unemploymentrate and the fact that the federal stimulus program will end incoming months, Elliott says. “There are realistic awarenesses thatthere are still things that could go wrong.”