Tuesday, March 25, 2008

Economic Recovery Won’t Come Until 2009 Say 90 Percent Of CFOs

According to a survey done by Duke University and CFO Magazine, nearly 90 percent of the chief financial officers (CFOs) surveyed don’t foresee economic recovery coming until 2009. Why is this important? CFOs are one of the key decision makers in companies, and if they see economic woes continuing through 2008, then their companies probably won’t make many expansionary investments this year. One wild card in this is the business investment tax breaks given as part of the Bush administration's economic stimulus package.

Since business investments are a major part of our economy, it is not a positive sign that most of the businesses out there are hesitant to make them at present. If businesses fail to make investments in equipment and other expansionary measures, the road to economic recovery will become much more difficult. Their fear will become a self-fulfilling prophecy. I can’t say that I blame them, though. I too am pessimistic on this point, and personally I think that a 2009 recovery is rather optimistic.

How the Bush economic stimulus package tax breaks will affect business investment this year remains to be seen, but I feel that it won’t have the impact that the administration is hoping it will. If the economy shows improvement later in the year, then one can bet that more businesses will take advantage of the tax benefits before they expire, but, at this point, it appears that most businesses think expansionary investments are too risky.

Investors out there should take note of what these CFOs are saying. If they believe that economic recovery won’t come until 2009, then their approach will likely make it a self-fulfilling prophecy and recovery won’t come until at least then. Unless one finds a tremendous investment opportunity, one is better off playing it safe, or focusing investment monies on investments that better perform during economic slumps.

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