The first survey produced by a cooperative agreement between Duke University and CFO Magazine isn’t likely to generate many smiles in corporate suites or in Washington, DC.

Chief financial officers simply aren’t as bullish overall about the economy for 2005 as they were earlier in the year. They cited a litany of concerns, ranging from fears about domestic terrorism and the war in Iraq to the federal budget deficit, increasing healthcare costs and foreign competition.

In fact, 36 percent of those surveyed told The Business Outlook that domestic terror fears are having a significant effect on their companies’ bottom lines.

In drop from the previous quarterly survey, 54.2 percent of the CFOs were more optimistic about the economy as 2005 nears, down from 55.7 percent. However, those who are less optimistic improved, down to 20.5 percent from 24.4 percent.

Another note of improvement came in CFOs who are more optimistic about their company. That percentage climbed to 61 percent from 59.3 percent, and the percentage of those who are less optimistic decreased to 16.2 percent from 20.6 percent.

“All of these numbers are down from last quarter, and other predictions are even less favorable,” said John Graham, professor of finance at Duke and director of the survey, in a statement. “Capital spending is expected to grow only at a ‘replacement level’ of 3.8 percent, and tech spending will increase just 4.9 percent.

“In addition, outsourced employment is expected to rise at more than half of the firms we surveyed, with the increase in outsourced employment expected to increase 4.3 percent,” he added. “Finally, CFOs are significantly less bullish than Wall Street about the prospects for economic growth: respondents forecast a GDP growth rate of 2.8 percent, compared with Wall Street’s consensus forecast of 3.3 percent.”

The survey included responses from 308 executives and was completed Dec. 5. It is a joint effort of Duke and the magazine, which recently announced plans to merge their survey efforts.

Asked to pick their top four concerns among a list of 12, some 66 percent picked the budget deficit as the top worry. The war in Iraq was right behind at 65 percent.

Other concerns cited by more than 40 percent of respondents included health care costs, social security and tax code reforms, and homeland security.

“This is a tall list of priorities that demand the president’s attention,” Graham said. “But several notable items do not rank as priorities.”

Among those are relationships with allies, trade deficit, oil prices and the declining value of the US dollar, which continues to set new record lows against the Euro.

The top risk to companies, the CFOs, said is healthcare costs, which drew 66 percent of a response. Second highest was competition at 56 percent. Other concerns included fuel costs and interest rates.
The CFOs also said they expect employment to increase by a mere 0.8 percent in 2005. That’s a decline from 3.1 percent as predicted in the last quarterly survey.

For details about the survey, see: www.cfosurvey.org/