U.S. financial chiefs hold gloomiest outlook since the last recession

Chief financial officers this quarter were the most pessimistic on the U.S. economic outlook since at least the last recession, an industry survey showed.

Almost two-thirds of executives held a darker view on growth than in the previous three months, outnumbering optimists by a four-to-one margin, according to the September Duke University/CFO Magazine Business Outlook index. The gauge was at the lowest level since its inception in June 2001, when the U.S. was in the midst of an eight-month contraction.

Growing concern over sales, wages and borrowing costs will cause hiring and investment to "stagnate," the report said. Almost half of the finance chiefs said even a half percentage point interest-rate reduction by the Federal Reserve next week, bigger than currently forecast, wouldn't help revive lending.

"The prospects for the U.S. economy are very poor, with a recession a distinct possibility," John R. Graham, a finance professor at Duke University's Fuqua School of Business and the survey's director, said in a statement.

The results are based on responses from 580 U.S. chief financial officers in a survey taken through Sept. 7.

Businesses, on average, planned to invest 3.2 percent more on new equipment and software over the next 12 months, less than half the projected increase at the beginning of the year. Executives foresaw no growth in payrolls, compared with a 0.4 percent gain forecast in June.

The finance chiefs planned to limit wage gains to protect profits. Respondents projected a 3.2 percent increase in wages and salaries for the next 12 months, down from 4.2 percent in June and 3.7 percent in March. Earnings will rise 8.8 percent, up from 8.6 percent in the prior survey.

High Correlation

The CFO survey has between a 60 percent and 70 percent correlation with future trends in employment, earnings and capital spending, surpassing polls such as the Conference Board's consumer confidence index and the Institute for Supply Management's manufacturing gauge, said Graham.

"The decisions CFOs are making today will show up in the economy in the next three to six months," Graham said in an interview. "They sign the checks. They are very much realists."

Economists also began to fret more about the economic outlook on Sept. 7 when the Labor Department reported the economy lost jobs in August for the first time in four years.

The 4,000 drop in payrolls followed a month-long increase in the cost of credit prompted by losses in the mortgage market. That suggested the housing slump had spilled over into the broader economy and increased speculation the Fed will cut rates to keep the economy from stalling.

Fed Rate Cut