Market Opinions Grim as Dow Dips Below 12,000

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The New York Sun

With the Dow Jones Industrial Average dipping below 12,000 yesterday and the Standard & Poor’s 500 Index plummeting 9% so far this year, market opinions on the health of the market are growing dour.

Two studies of business executives released yesterday confirmed this attitude: Of more than 1,000 CFOs surveyed by Duke University and CFO Magazine, more than half do not expect the economy to rebound until mid-2009 at the earliest, and 40% said the economy in 2008 is in a recession.

Another market survey, the Business Roundtable’s index, which measures CEOs’ economic outlook, tumbled to its lowest level in nearly five years, with nearly three-quarters of respondents saying their companies’ employment levels either would remain stable or decrease.

The market tumbled for the second straight day yesterday on concern about the financial sector, with Morgan Stanley reporting that earnings were down 61% in the second quarter, compared with the same period a year earlier. In addition, a warning from FedEx Corp. that weakening demand and high fuel costs could eat into its profits spooked the market, with the Dow dropping 130 points to 12,029, following a loss of more than 100 points on Tuesday.

“Our survey indicates that CFO optimism is bottoming out near record lows,” a finance professor at Duke’s Fuqua School of Business and the director of the Duke University/CFO Magazine Global Business Outlook survey, John Graham, said. “Even more worrisome, there is evidence of stagflation: slow economic growth and rising unemployment combined with inflation.”

The study, which surveyed CFOs from both public and private companies, found that 71% predict the economy will not rebound until next year, and 54% predict it will not improve until mid-2009 or later. Among those surveyed, nearly half say their companies are passing along higher fuel and other costs to customers in the form of higher prices, potentially exacerbating inflation pressures, with prices expected to jump more than 4%.

Among those CFOs directly affected by the credit crunch, 58% say credit is hard to find, while nearly 60% say they will reduce their investment or hiring in response to economic conditions. They plan to reduce their workforces by 0.2%, with capital spending expected to rise 2.3% and earnings growth to be 2.9%.

The Business Roundtable’s CEO Economic Outlook Index, which surveys CEOs who represent nearly 10 million employees and $4.5 trillion in annual revenues, declined to 74.5 in the second quarter, down from 79.5 in the first quarter. Of those interviewed, 42% expect their companies’ employment to remain stable, while 31% predict it will decrease. Just 28% said it would increase. CEOs were more optimistic on other issues, with 68% expecting an increase in sales during the next six months, while more than half, or 52%, expect their company’s capital spending to remain stable.

On overall growth, the CEOs estimate GDP will be 1.3%, down .2 percentage points from last quarter.

“Our CEOs clearly have tempered their overall expectations against a backdrop of continued housing declines and mounting energy prices,” the chairman of the Business Roundtable and CEO of the McGraw-Hill Companies, Harold McGraw III, said.


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