CFOs Cautiously Optimistic

Despite concerns about labor costs and market risks, respondents to this year's "CFO Outlook" survey have the most optimistic outlook since the start of the financial crisis.

As the global economy continues to recover, what is happening in individual businesses across the United States? Are finance executives feeling good about their organization’s prospects? What are their top concerns for 2014? Bank of America Merrill Lynch set out to answer these and related questions in its latest “CFO Outlook” survey. Now in its 16th year, the project polled 751 CFOs and other finance executives nationwide.

121813_BofA CFO Outlook_Figure 1Overall, survey respondents indicated that they are feeling pretty good about domestic economic conditions. When asked to rate the current state of the U.S. economy, from 0 to 100 with 100 meaning “extremely strong,” finance executives were more positive than they’ve been since 2008. The average rating for the current state of the economy was 53—the first time in six years that it’s been above 50. Along the same lines, nearly half of respondents believe that the economy will expand next year, while only 12 percent expect it to contract. This is a dramatic improvement when compared with the 24 percent who predicted a contraction in last year’s “CFO Outlook” report. (See Figure 1.)

The majority of respondents indicated that they’re concerned about healthcare costs (67 percent), the effectiveness of the U.S. government (62 percent), and the federal budget deficit (57 percent). Nearly half (49 percent) are also concerned about the U.S. regulatory environment. Nevertheless, more than half (54 percent) expect their company’s sales to be higher in 2014 than they were this year, and almost as many (47 percent) believe their company will expand its workforce in the year ahead.

Employee and market risks—such as interest rate, commodity price, and investment portfolio risks—top the list of CFOs’ primary risk management concerns. In fact, four out of five survey respondents cited unanticipated labor costs as a major worry (see Figure 2, below), and they see the Affordable Care Act (ACA) as a key driver of this risk. More than half of respondents (53 percent) expect their labor costs to increase as a result of their ACA compliance efforts.

Thirteen percent are working to contain this risk by offering employees a slimmed-down version of their current health plan, while 11 percent are keeping their current coverage but increasing deductibles. However, 65 percent are staying with their existing coverage, and only 3 percent are responding to the ACA by using health insurance exchanges to cover employees. Most companies have weighed their options and taken steps to ensure their compliance with the law. Twenty-eight percent of survey respondents said their company is completely ready to comply with the ACA, and 46 percent said it's mostly ready, while just 4 percent of companies are not ready at all to meet ACA requirements.

All in all, the survey shows that CFOs across the United States are concerned about the changing labor and regulatory environment, but are cautiously optimistic about the future of their own organization.

121813_BofA CFO Outlook_Figure 2-v2

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