CFOs predict 13 percent capital spending increase

According to the first quarter "CFO Outlook Survey," conducted by Financial Executives International and Baruch College's Zicklin School of Business, CFOs are forecasting a 13 percent increase in capital spending over the next 12 months. Even though they expect long-term interest rates to rise, they are not worried about the effect on their businesses.

CFOs rate their optimism on the economy at 71 out of a possible 100 and their optimism about the financial prospects for their companies at 75. Both numbers are within a two-point range of the rates for the past four quarters.

This quarter's 13 percent forecast for a capital spending increase over the next year closely tracks the forecast from last quarter and remains significantly higher than the 8 percent increase forecast six months ago.

More than 90 percent of respondents expect long-term interest rates to rise over the next 12 months. Sixty-six percent expect 10-year rates to land between 4.29 percent (their yield on February 28) and 4.75 percent, and 25 percent predict they will go above 4.75 percent. Nevertheless, rising interest rates ranked sixth in a list of their companies' biggest worries, far behind the traditional business pressures of competition and U.S. economic growth, but slightly ahead oil prices and compliance costs.

CFOs expect health care costs to rise 9 percent in the next 12 months. The impact is affecting employee coverage. Forty-two percent of private companies, which typically are smaller than the public companies in the survey, said that high costs have caused them to trim benefits. Of those cutting back, 71percent have reduced the number of plan benefits and features, while 79 percent now require higher employee contributions. Of the 10 percent of respondents who said they enhanced their health care coverage despite rising costs, 78 percent said they improved the quality of the benefits.