U.S. CFO's Predict Stronger Earnings in 1999, Duke Survey Says

Washington, Jan. 7 (Bloomberg) -- More than half of U.S. corporate chief financial officers said they believe their earnings will improve this year over 1998, according to a survey by the Financial Executives Institute and Duke University.

Of 331 chief financial officers surveyed, 58 percent said they believe their earnings will increase, though only 15 percent said that sales will rise. A year ago, 64 percent predicted improved earnings.

``Normally, they move together,'' said John Graham, the Duke finance professor who directed the survey, of the sales and earnings predictions. The survey is produced quarterly and includes responses from companies of different sizes and industries, though questions can vary from quarter to quarter.

``This must be an indication these firms are going to wring water out of a rock,'' he said. Graham said he's unsure where exactly these companies will extract their earnings, given that few plan layoffs.

``If your inventories are built up, you won't have to purchase as much in 1999. That could lower expenses,'' he offered as a possible example. Almost half the companies surveyed said they expected financial woes overseas to become worse. However, Graham said the question was directed at the overall global economic outlook and not at the effect on the companies themselves. Few of those surveyed are directly affected by overseas markets, he said.

Manufacturing companies were more gloomy in their assessments than others, with 8 percent expecting overseas difficulties to become much worse and 54 percent saying things would be slightly worse.

U.S. manufacturing suffered in December, by one measure posting its weakest month since the end of the last economic recession in 1991. The National Association of Purchasing Managers' factory index declined to 45.1 last month from 46.8 in November, the third month it has fallen.

In other categories of the survey, 31 percent of chief financial officers said they expected to increase employment this year, compared with the 56 percent who three months ago said they would be hiring. Eleven percent estimated they would reduce the number of employees, and 58 percent said they would keep the same number of workers.

 ``On average, unemployment has gone down a little bit in the last quarter. It's possible last quarter they hired more people,'' Graham said, explaining the decline in hiring plans.

 More than half the companies surveyed said they would keep their business investment at the same level. Only 24 percent of the companies said they would increase investment, down from 56 percent in the last survey completed in September.

Wages will grow at the fastest rate in high-tech industries, with chief financial officers predicting salaries to increase an average 8.4 percent. Manufacturers expected the smallest wage increases, at 1.2 percent.

Overall, employers predicted wages would grow by about 3 percent compared with 4.2 percent predicted six months ago, the last time the chief financial officers were asked that question.``They're thinking wage pressure is a little less,'' Graham said.

Chief financial officers predicted prices would rise 1.4 percent in 1999, with the biggest increases coming in computers and software.

Also, 14 percent of companies said borrowing has become very easy in the last six months, and 18 percent said it has been somewhat easy, the first time the respondents were asked that question. Graham attributed the responses to a succession of quarter-point interest-rate cuts by Federal Reserve policy-
makers. The Federal Open Market Committee reduced the overnight bank lending rate to 4.75 percent on Nov. 17, following reductions on Oct. 15 and Sept. 29.

--by Tammy Williamson in Washington