U.S. Corporate Finance Professionals Predict Continued Economic Growth

See Moderate Growth and Expect Continued Hiring but Rising Interest Rates, Volatile Energy Costs and Health Care Costs Seen As Potential Threats to Growth in 2006

December 14, 2005 – Bethesda, MD – Financial professionals believe that the U.S. economy will continue to grow at a moderate pace in 2006, according to a new survey conducted by the Association for Financial Professionals (AFP). Further treasury and finance professionals expect their companies to increase their U.S. workforce in the coming year, but they note several threats to future economic growth, including, rising interest rates, volatile energy costs, and rising health care costs.

Just over half of treasury and finance professionals (51%) expect the U.S. economy will continue to grow at a moderate pace in 2006 (GDP growth between 3% and 4%) over the next 12 months. Further, a quarter (25%) expect stronger GDP growth (greater than 4%), while the remaining quarter (24%) of financial professionals expect weaker GDP growth (or even contraction) in 2006.

"While treasury and finance professionals were slightly more optimistic entering 2005 than they are as we enter 2006, the results of our survey continue to show that U.S. corporations are planning and implementing their business strategies largely on a positive financial outlook," said Jim Kaitz, president and CEO of the Association for Financial Professionals. "Treasury and finance professionals are in a unique position to observe business conditions and help to shape corporate strategies based on their assumptions. They make critical business decisions on corporate borrowing, business investments and efforts to mitigate risk. The AFP members responding to the survey represent a wide range of industries and public or private organizations of varying sizes, providing an excellent indicator of future business investments."

Overall, 47% of financial professionals expect business conditions to improve over the next 12 months, while another 41% believe business conditions in the upcoming year will remain similar to those in 2005. Only 12% expect business conditions to deteriorate in the coming year.

Continued confidence in business conditions is reflected in the decision to hire more employees. Thirty-seven percent (37%) of financial professionals report that their company plans to increase its U.S. workforce over the next year, while 42% expect that their company will maintain its workforce at current levels. Just 14% report that their company intends to shrink its U.S. workforce in the coming year. Smaller companies are more likely to indicate an intention to grow its U.S. workforce: 43% of companies with annual revenues below $250 million expect to expand its U.S. workforce, while just 12% of similarly sized companies expect to shrink its U.S. employment.

While generally confident of the future, survey respondents identify several factors that they expect will increasingly affect the overall business environment in 2006:

• Rising interest rates (75%)
• Volatile energy costs (67%)
• Rising health care costs (58%)

"These findings are particularly interesting when compared to the results of the past two AFP Business Outlook surveys," noted Kevin Roth, Director of Research at the Association for Financial Professionals. "Despite the dramatic increases in energy costs after the hurricanes, concerns over rising energy costs dropped 16 percentage points since our June 2005 Mid-Year survey, while rising interest rates rose 14 percentage points into first place on the list of factors that will affect overall business conditions. These issues surpassed the top three concerns from last December’s survey."

Reflecting the concerns over costs, financial professionals believe that their businesses will be facing increased costs over the next 12 months: 95% believe interest rates will continue to rise in 2006, while 82% forecast continued increases in energy costs.

Despite the concerns over costs, the treasury and finance professionals indicate that their company plan to keep short-term debt (52%) and long-term debt (49%) at similar levels. Most financial professionals report that their company's access to credit remained stable over the past six months and few financial professionals believe their company's access to credit will deteriorate over the next 12 months.

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

• 79% of financial professionals believe the growth rate of inflation will increase over the next year;
• 78% believe the U.S. trade deficit will continue to increase;
• 75% believe competition from abroad will increase;
• 34% expect their company will gain increased pricing power over the next 12 months:
• 62% of respondents expect increases in business investment over the next 12 months; and
• 56% of respondents believe that consumer demand will pick up in 2006.

"While the U.S. economy appears to be facing challenges in the coming year, financial professionals expect their companies to be investing for the future," concluded Kaitz. "The fact that the treasury and finance professionals in our third consecutive survey continued to show optimism is positive news for the U.S. economy as a whole."

The AFP Business Outlook for 2006 Survey was conducted between November 30 and December 10, 2005 and generated responses from 663 financial professionals. The results produce a margin of error of +/- 3.8 percent at a 95 percent confidence level. 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.