December 13, 2010 -- WASHINGTON --Financial professionals are increasingly optimistic about 2011 business prospects, according to executives in the finance departments of U.S. companies, but they believe several factors stand in the way of 2011 growth. The 2011 AFP Business Outlook Survey released today by the Association for Financial Professionals (AFP) shows that although 42 percent of financial professionals expect their organizations to resume hiring in the coming year, they see a lack of consumer confidence holding back business expansion, and they remain concerned about corporate taxes and general business sentiment in Washington.
The AFP survey, which closed Friday, also shows that 48 percent of respondents expect business conditions to improve moderately in 2011, with no need for additional stimulus. The GDP growth rate they anticipate is a moderate 2.3 percent.
Overwhelmingly, financial professionals do not believe that additional fiscal stimulus is necessary or desirable at this stage. Just 15 percent of survey respondents say that additional fiscal stimulus is necessary, given current economic conditions. In fact, many support actions that would reduce the size of the federal deficit, with 37 percent of financial professionals saying that the state of the economy and the size of the federal deficit make it imperative to enact proposals like those from the deficit reduction commission.
Also regarding so-called QE2, 44 percent of survey respondents believe that risks like inflation and U.S. dollar volatility outweigh the benefits of the action. Yet, they see more than a one-in-three chance that the Federal Reserve will continue purchasing securities beyond the June 30 scheduled end of the current round of quantitative easing.
"AFP members indicate that they have moderate expectations about business growth in the coming year, but they are tempering their optimism due to concerns about corporate taxes and, indeed, business sentiment in Washington," said Jim Kaitz, president and CEO of AFP. "The survey shows that instability is being caused by a broad range of issues. On the immediate horizon, uncertainty around 2011 business taxes needs to be resolved."
Despite the improvement seen ahead, the vast majority of financial professionals do not expect inflation to build significantly in 2011, with a median CPI prediction of 1.4 percent. However, more point to a risk of possible inflation (56 percent) than to deflation (39 percent).
Looking at timing of possible rate hikes, of those responding to the AFP survey, 44 percent say the FOMC will begin to raise the Fed funds target rates in the second half of 2011; 32 percent say the first half of 2012; 10 percent say the second half of 2012.
Funding ––whether through bank lending or access to credit and debt markets–– has stabilized for most organizations and has improved for three in ten over the past year, the survey shows. Companies have a variety of sources they can tap for funding needs, and many continue to hold large amounts of cash on the sidelines.
This is the seventh year in which AFP has surveyed members in December to track their outlook of future business conditions.
AFP members, who are responsible for ensuring that their organizations have enough cash on hand to fund operations, are positioned to observe the cash flows and investment decisions of their organizations, and are knowledgeable about their organization's future funding needs. Since they work in a wide range of industries and in both public and private organizations of varying sizes, their opinions reflect a broad corporate perspective that is both operational and strategic. (In last year's survey, the AFP membership pointed to a lagging economy with severely curtailed corporate investment in 2010.)
Nine out of ten financial professionals believe that the uncertainty around business income taxes and Washington's attitude about business, particularly in terms of regulatory and legislative tone, have had a detrimental impact on economic growth in the U.S. Among respondents, 58 percent regard uncertainty about taxation of business income as being a major detriment while 55 percent say that a perceived "anti-business" sentiment among policymakers in Washington is hurting economic prospects. Also weighing down growth, 47 percent of financial professionals indicate that the size of the federal deficit is a major detriment and 36 view the volatility in the U.S dollar as a major detriment.
Looking ahead, financial professionals expect these major issues to influence business conditions next year:
- 90 percent - Consumer spending/confidence
- 79 percent - Well-functioning corporate credit markets
- 69 percent - Mortgage defaults
- 68 percent - Consumer access to credit
- 63 percent - Sovereign debt crisis affecting Europe
ABOUT THE SURVEY
From November 29 through December 10, the AFP surveyed U.S. financial professionals about current and expected business conditions in the U.S. The survey generated 808 responses from professionals holding a variety of positions within their organizations, including CFO, vice president of finance, treasurer and assistant treasurer. The results produce a margin of error of +/- 3.4 percent. The full survey report is available on www.afponline.org/outlook .
The Association for Financial Professionals ( www.afponline.org ) serves a network of more than 16,000 treasury and finance professionals. Headquartered outside Washington, DC, AFP provides members with news, economic research and data, treasury certification programs, networking events, financial analytical tools, training, and public policy representation to legislators and regulators.
AFP's global reach extends to over 150,000 treasury and financial professionals worldwide, including AFP of Canada; London-based gtnews, an on-line resource for the treasury and finance community; and bobsguide, a financial IT solutions network.