Duke - The Fuqua School of Business

News Release

CFO Survey: U.S. Political Risk to Hinder Capital Spending Beyond Election

September 14, 2016



DURHAM, N.C. -- More than a third of U.S. CFOs say political uncertainty will put the brakes on their spending plans beyond the election, which could create a significant drag on the economy, a new survey finds.

The latest Duke University/CFO Global Business Outlook finds at least 33 percent of CFOs, regardless of who is elected, say that they will hold back on investment after the election as they wait to see how the new president will govern.

"It is surprising to hear a fair number of business leaders say they will continue to wait and see after the election, until it becomes clearer how the new president and Congress will lead," said John Graham, a finance professor at Duke's Fuqua School of Business and director of the survey. "We're accustomed to seeing investment falling in the September before an election, but that uncertainty usually dissipates on Election Day and investment levels return to normal in December. This year, the dampening effect of political uncertainty will continue past Election Day."

The survey found 40 percent of CFOs say they will hold off on investment if Hillary Clinton is elected. About 33 percent say the same about Donald Trump. Specifically:

  • About 26 percent of all U.S. firms said they are already delaying investment because of the election.
  • Among the 26 percent currently delaying investment, three-fourths will continue to delay investment if Clinton triumphs versus roughly half of firms if Trump wins.
  • Among the majority of firms not currently delaying investment because of the election, about one fourth said they would change course and delay investment plans if Clinton was elected, and another fourth said they would do the same if Trump wins.


Due in large part to political and economic uncertainty, U.S. firms on average do not plan to increase capital investment or research and development over the next 12 months. This follows an already weak level of investment.

The survey of more than 1,200 senior finance executives ended Sept. 9. The Global Business Outlook has been conducted each quarter for 82 quarters and spans the globe, making it the world's longest-running and most comprehensive research on senior finance executives. Results are for U.S. firms unless otherwise noted.

U.S. companies indicate that moderate interest rate hikes will not affect their spending plans. Only one-in-three firms say that a 1 percent rate hike would cause their firm to reduce capital spending.

"CFOs are giving the Fed the green light on near-term rate increases," said Fuqua professor Campbell R. Harvey, a founding director of the survey. "Given interest rates are at historic lows, CFOs' spending plans are relatively insensitive to rate increases. The Treasury bill yield has been close to zero since November 2008. CFOs are saying it's time to get back to normal conditions. Our evidence suggests there is no merit for the argument that increased rates will lead to substantial investment spending cutbacks."

The labor market continues to tighten in the U.S., making it difficult for many companies to hire and retain qualified employees, and contributing to wage increases. Thirty-six percent of U.S. firms indicate they are having difficulty hiring and retaining qualified employees.

"Employment in the U.S. is expected to grow 1.4 percent over the next year, which will continue to exert downward pressure on the unemployment rate," said Christopher Schmidt, senior editor at CFO Research. "CFOs are telling us that they plan to hike wages by 2.9 percent, nearly double the expected 1.6 percent increase in product prices.

"The tight labor market, combined with a skills mismatch between what companies want and what they can get, makes wage inflation more likely," Schmidt said. "This is the type of data that could make the Fed more favorably disposed to interest rate hikes."

Thirty-one percent of European businesses say it would be best for their firms if Britain makes a slow exit from the European Union. Thirty percent of European CFOs believe that Britain will complete the exit by the end of 2019; 54 percent say it will happen by the end of 2020.

Twenty-seven percent of European firms say their UK-based revenues will fall after Brexit. Among these firms, the proportion of revenues coming from the UK is expected to fall from 22 percent to 14 percent.

One-in-five European CFOs believe that another country will vote to withdraw from the EU within two years. The leading candidates are Denmark, the Netherlands, Hungary and Greece.

The Optimism Index for the U.S. economy inched up this quarter. On a scale from zero to 100, financial executives rate their optimism at 60.6, up from 59.4 last quarter and slightly above the long-run average. Concerns in the U.S. include regulatory requirements and the cost of benefits. Health care costs are expected to rise by 6.8 percent over the next year.

Canadian optimism rose to 64 this quarter, up from 63 in June.

The optimism index in Europe increased to 56 this quarter, up from 53 in June. Wages should increase by 1.7 percent over the next year, and employment by 1.1 percent. Top European concerns include economic uncertainty, weak demand, regulatory requirements, currency risk, government policies and attracting qualified employees. Nearly 60 percent of European CFOs say they are holding off on investment due to their own country's political uncertainty.

Asian optimism averaged 65 out of 100 this quarter, ranging from 40 in Singapore, 48 in Japan and 55 in Malaysia to 65 in India and 70 in China. Two-thirds of Asian CFOs indicate they are holding back on investment spending due to political risk in their countries, though capital spending should rise by an average of about 5.5 percent over Asia. No spending growth is expected in Japan.

Wages should rise by a modest-by-historic-standards 4 percent in Asia, with growth of less 3 percent in Japan versus 5 percent in India. Full-time employment will be flat across Asia. Top concerns include economic uncertainty, government policies, difficulty attracting and retaining qualified employees, and productivity.

African optimism remains at 46 this quarter, ranging from 44 in South Africa to 46 in Nigeria. Capital spending will rise by about 7 percent on average, with a 10 percent increase in Nigeria versus a 3 percent hike in South Africa. Wages should increase 7 percent over the next 12 months. African CFOs are worried about economic uncertainty, government policies, currency risk, inflation and limited access to capital.

Nearly ninety percent of African CFOs say they are cautious in investing and hiring due to political risk. Three-fourths of business leaders say that the outlook for the economy has worsened over the past year, and 61 percent say investment prospects have declined. Nigeria recently adopted a floating exchange rate for the naira. However, only 22 percent of CFOs believe this will help their firms and only 11 percent think it will reduce inflation.

Latin American economic optimism dipped to 50 (on a 100 point scale) from 53 last quarter, though the optimism index varies across countries. Optimism in Chile and Ecuador remains below 50, while Brazil rebounded somewhat to 53. Optimism remains strong in Mexico (63) and Peru (69). Averaged across Latin America, capital spending plans are up 2 percent, with a positive outlook in all responding countries except Chile. Full-time employment is expected to increase 3 percent or more in Mexico and Peru, and fall in Brazil, Chile and Colombia.

Eighty-eight percent of Latin American CFOs indicate that political risk is causing their firms to be more cautious in business spending. One bright spot is the recent election of President Pedro Pablo Kuczynski in Peru. Ninety-five percent of Peruvian CFOs expect his policies to be helpful to their firms, as do 43 percent of CFOs in Chile.

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Detailed results, including tabular summaries of the numbers in this release and results from previous surveys are available at www.cfosurvey.org.

About the survey: This is the 82nd consecutive quarter the Duke University/CFO Global Business Outlook survey has been conducted. The survey concluded September 9, and generated responses from more than 1,200 CFOs, including nearly 500 from the U.S., 35 from Canada, 334 from Asia, 160 from Europe, 150 from Latin America and 112 from Africa. The survey of European CFOs was conducted jointly with TiasNimbas in the Netherlands (C.Koedijk@uvt.nl) and ACCA, based in the U.K. The survey of Latin America was conducted jointly with Fundação Getúlio Vargas (FGV) in Brazil (gledson.carvalho@fgv.br, klenio.barbosa@fgv.br) and with Universidad Andina Simon Bolivar in Ecuador. The Japanese survey was conducted jointly with Kobe University (cfosurveyjp@people.kobe-u.ac.j) and Tokyo Institute of Technology, among others. The African survey was conducted jointly with SAICA (nazeerp@saica.co.za). The Chinese survey was conducted jointly with Beijing National Accounting Institute (jiangj@mail.nai.edu.cn).

The Duke University/CFO Global Business Outlook survey polls a wide range of companies (public and private, small and large, many industries, etc.), with the distribution of responding firm characteristics presented in online tables. The responses are representative of the population of CFOs that are surveyed. Among the industries represented in the survey are retail/wholesale, mining/construction, manufacturing, transportation/energy, communications/media, technology, service/consulting and banking/finance/insurance. The average growth rates are weighted by revenues or number of employees. For example, one $5 billion company affects an average as much as 10 $500-million firms would. Revenue-weighted mean growth rates are provided for earnings, revenues, capital spending, technology spending and prices of products. Employee-weighted mean growth rates are used for health care costs, productivity, number of employees and outsourced employment. The earnings, dividends, share repurchases and cash on balance sheet are for public companies only. Unless noted, all other numbers are for all companies, including private companies.