U.S. Corporate Financial Professionals Expect Continued Economic Growth for the Remainder of 2005

Energy Prices and Rising Interest Rates Viewed as Threats to Growth in AFP Survey

June 28, 2005 – Bethesda, MD – The U.S. economy will continue to grow at a moderate rate in 2005, according to a newly released survey conducted by the Association for Financial Professionals (AFP). Among the corporate finance professionals responding to the AFP Mid-2005 Business Outlook Survey, the majority indicates key drivers of sustained economic growth are both improved access to credit and growth in employment. While treasury and finance professionals continue to highlight concerns about the fluctuating value of the U.S. dollar and the trade deficit, growing energy costs and higher interest rates now rank as the factors most influencing overall business conditions over the next twelve months.

Four out of five survey respondents (81%) expect the U.S. economy to continue growing at a moderate pace (between 2.0% and 3.9%) over the remainder of 2005, while 5% of treasury and finance professionals expect strong growth (4.0% to 5.9%). Fourteen percent (14%) of respondents expect the economy to grow more slowly (less than 2.0%), while one percent (1%) of financial professionals expect the U.S. economy to contract during the rest of the year.

Further, three out of five (59%) of treasury and financial professionals expect business conditions to remain "about the same" through the remainder of 2005. An additional 31% of respondents to the AFP survey expect conditions to improve.

"Finance professionals make critical business decisions – such as corporate borrowing or business investments – based on their observations and assumptions for the economy," said Jim Kaitz, president and CEO of the Association for Financial Professionals. "Our members, who represent both public and private organizations of varying sizes, continue to be optimistic about the business outlook. In AFP’s December 2004 Survey they expressed a positive outlook, and despite the threat of rising costs, they continue to be upbeat, which is good news for the U.S. economy as a whole."

While remaining confident of the future, survey respondents however identified several factors that they expect will affect the overall business environment in the coming twelve months. Energy costs and interest rates jumped to the top of the list, passing the weak U.S. dollar and the federal deficit, which were the top concerns in the December 2004 survey. The top five factors identified that could threaten economic growth in the mid-2005 Survey are:

• Energy costs (83%)
• Interest rates (61%)
• Value of the U.S. Dollar (52%)
• Health care costs (49%)
• Consumer demand (46%)

Confidence expressed by the financial professionals surveyed is reflected by the amount of credit made available to their companies over the past six months and expectations of the availability of credit through 2006. Forty-two percent (42%) of respondents indicate their company’s access to short-term credit increased over the past six months, and 24% believe their organization will have greater access to short-term credit over the next year. Similarly, 38% experienced increased availability of long-term credit over the past six months and 20% expect increased availability in the coming year. Further, the majority of respondents report no change in the access to credit over the past six months (56% for short-term credit and 61% for long-term credit) and the majority of respondents also expect no change in credit availability over the next 12 months (71% for short-term credit and 75% for long-term credit).

Continued confidence in the business conditions is also reflected in the decision to hire more employees. Forty percent (40%) of financial professionals report that their company plans to increase its U.S. workforce over the coming twelve months while thirty-seven percent (37%) expect that their company will maintain its workforce at current levels.

Financial professionals however believe that their business will be facing increasing costs over the next twelve months. Nine out of ten survey respondents believe both interest rates and health care costs will continue to increase, while 79% forecast continued increased in energy costs. Financial professionals also believe that inflation will increase over the next twelve months and that the trade deficit will continue to increase as competition from abroad continues to impact their businesses. The majority do not believe their company will gain increased pricing power over the next year. Financial professionals are divided in their expectations on whether foreign currencies will gain or lose value against the U.S. Dollar.

The survey also asked financial professionals for their views on other key economic indicators:

• Half of respondents expect the Euro to gain value against the U.S. Dollar in the next six months, while 56% expect the Japanese Yen and the British Pound to increase against the U.S. Dollar and 52% expect the Canadian Dollar to gain against the U.S. Dollar

• 54% expect a modest revaluation of the Chinese Yuan versus the U.S Dollar over the next six months

• While 48% believe the revaluation of the Chinese Yuan would have a positive impact on the U.S. trade deficit, 80% believe it would have little impact on their company’s business

• 43% expect their company to maintain levels of outstanding long-term debt

• 46% expect their company to maintain levels of outstanding short-term debt

The AFP 2005 Mid-Year Business Outlook Survey was conducted June 13th to June 24h, and 316 financial professionals responded to the survey. Full survey results are available at www.AFPonline.org/research.

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The Association for Financial Professionals, headquartered in Bethesda, Maryland, supports more than 14,000 individual members from a wide range of industries throughout all stages of their careers in various aspects of treasury and financial management. AFP is the preferred resource for financial professionals for continuing education, career development, certifications, research, representation to legislators and regulators, and the development of industry standards. Sponsored by the Association for Financial Professionals, the CTP designation is the globally recognized industry standard for treasury and a requirement for a changing profession. More than 16,000 professionals have earned AFP’s certification since 1986. For more information about AFP, visit www.AFPonline.org.