After a year that saw the collapse of credit markets and the loss of nearly 2 million U.S. jobs, five out of six financial professionals do not expect business conditions to improve in 2009, according to the newly released 2009 Association for Financial Professionals (AFP) Business Outlook Survey. Fifty-five percent of the more than 800 financial professionals responding to the survey expect business conditions to continue to weaken during 2009; while 29 percent expect business conditions to remain the same.
Without access to credit, organizations are taking defensive actions, including: hiring freezes, layoffs, reduced capital spending, tightening credit standards for trading partners and the closing of plants and/or offices.
Reflecting the weak business outlook, nearly half of financial professionals (49 percent) expect their organizations to decrease the number of workers they employ over the next year. This is in addition to the ninety-two percent of organizations that have taken at least one defensive action in response to the credit market turmoil. Defensive actions have included:
- Sixty-five percent of financial professionals report their organization have frozen and/or reduced hiring as a result of reduced access to short-term credit since September.
- More than half (56 percent) have considered or implemented staff reductions or layoffs.
- Sixty-one percent have reduced capital spending.
"Tight credit markets continue to choke off businesses' ability to grow and hamper economic recovery," said Jim Kaitz, President and CEO of AFP. "Financial professionals are making hard decisions on borrowing and investing -- their views on the economy speak directly to credit and overall market realities."
Three-quarters of financial professionals link an eventual economic recovery to improvements in credit access. This fall, the U.S. Treasury Department and the Federal Reserve took a series of actions with the purpose of restarting credit markets. However, according to respondents, the results have been mixed:
- While 63 percent of survey respondents believe that these government actions have mitigated the impact of the turmoil in the financial system, just eight percent of financial professionals report their organizations' access to credit has improved since those actions took place.
- 36 percent report their access to credit had deteriorated over the past two months.
- 56 percent of financial professionals indicate that their organizations' access to credit has not changed since October 1st.
Despite government actions, only seven percent of financial professionals believe the worst of the credit crisis has passed. Three out of ten financial professionals believe the credit markets will begin to recover during the first few months of 2009 while 63 percent of survey respondents believe it will not be until at least mid-year 2009 before the credit markets begin to recover.
While businesses have already taken defensive actions since the beginning of the credit crisis in September, additional measures may need to be taken to reduce spending. According to the survey, should short-term credit conditions not improve by mid-year 2009, 79 percent of organizations expect to take additional defensive actions to conserve cash, including:
- 69 percent expect to reduce capital spending
- 64 percent expect to consider or put in place layoffs
Financial professionals expect gross domestic product (GDP) to shrink slightly in 2009, with the median GDP growth prediction at -0.3 percent:
- A third of respondents (33 percent) expect GDP to decline between 0.1 and 1.0 percent during 2009, while 17 percent expect GDP to decline by between -1.1 and -2.0 percent.
- Twenty-seven percent expect that there will be no economic growth in 2009 (i.e., annual GDP growth will be zero), or that growth will be less than 1.0 percent.
While a number of factors will ultimately influence the direction of the U.S. economy in 2009, a majority of financial professionals agree on four that will impact the rate of economic growth (or contraction) over the next 12 months:
- Consumer demand
- Access to corporate credit
- Access to consumer credit
- Stability in the housing market.
Nearly four out of five survey respondents believe that consumer demand (and confidence) will play a significant role in the direction of the U.S. economy in 2009. Financial professionals believe that corporate access to credit (75 percent) and consumer access to credit (65 percent) will continue to be major factors affecting business conditions over the next 12 months. The slumping housing market, which has not only been a root of the credit crisis but also of the recession, is also expected to be a major factor influencing economic growth in 2009-54 percent of survey respondents report that it will be a factor affecting business conditions over the next 12 months.
Between December 1 and 12, 2008, the AFP surveyed U.S. financial professionals about current and expected business conditions in the U.S. The survey generated 816 responses from professionals holding a variety of positions within their organizations, including CFO, VP of finance, treasurer and assistant treasurer. The results produce a margin of error of +/- 3.4 percent. The full survey report is available at http://www.afponline.org/research.