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CFOs are Bullish on 2005 Economy
GLASTONBURY, Conn. -- More than three out of four chief financial officers --77% -- believe the national economy will grow next year, according to a latest Bank of America Business Capital CFO Outlook survey. This is the highest percentage of CFOs anticipating economic expansion in the survey's seven-year history.While upbeat about the overall U.S. economy, only 44% of CFOs expect the U.S. manufacturing sector to expand in 2005, down significantly from 53% last year and 67% the year before. What's more, nearly one quarter (24%) of those surveyed believe the manufacturing sector will contract next year.Despite a less sanguine outlook for the manufacturing sector, 81% of CFOs surveyed expect their revenues to increase in 2005 up from 72% last year.Eight out of 10 also cited cost of material, supplies and equipment (82%) as their top financial concern, followed by energy costs including gas and oil (72%) and the U.S. economy (71%). Fully 63% expect their product pricing to increase in 2005 compared to 37% last year."The survey shows manufacturers are preparing for rising interest rates and expect increases in the cost of energy and raw materials," said Mickey Levy, chief economist for Bank of America. "They clearly plan to pass these costs on through price increases which explains their positive outlook on top-line growth."Some 41% of CFOs expect to increase their capital expenditures next year compared with 32% last year. What's more, 25% reported accelerating their growth plans, nearly double the 13% from last year. And, 23% expect to participate in a merger or acquisition, up substantially from 14% last year."These results are consistent with what we're seeing in the marketplace," said Bank of America Business Capital President James G. Connolly. "Borrowers have strong balance sheets and are prepared to execute growth plans and remain competitive through merger and acquisition activity and increased capital spending where appropriate."CFOs likely expect continued interest rate increases, with 62% anticipating their cost of capital to rise compared with 41% last year. In addition, the use of interest rate hedging products has increased to 22% from 16% last year, the survey found.While 58% of CFOs expect the U.S. economy to outperform the world economy next year, there were a number of indications that manufacturing is clearly growing as a global business. Fully 84% of CFOs are doing business overseas, up from 75% last year; 62% of those who sell to foreign markets expect their sales to increase in 2005, up nearly 10% from last year.Other key survey findings include:The year-end expiration of the 50% special depreciation allowance for capital expenditures has had some effect, with 17% accelerating capital expenditures to take advantage of this tax provision.40% of CFOs say that credit availability from their current lender has increased over the past 12 months.89% of companies surveyed purchase at least one financial product in addition to their credit facility. Letters of credit topped the list (64%) followed by cash management (58%).<>32% of CFOs believe that the purchase price for companies in their industry -- as a multiple of earnings -- will increase in 2005.72% of CFOs said they buy from foreign markets compared to 52% last year; 68% said they sell to foreign markets compared to 56% last year.39% have operations outside the United States compared with 33% last year.Bank of America Business Capital is one of the world's largest asset-based lenders, with more than 20 offices serving the United States, Canada and Europe.Visit Bank of America: www.bankofamerica.comThis report is new this week in The Business Journal's small business how-to section. To see what else is new, click here or click on the "how-to" tab at the top of The Daily Business Journal Online home page. "