Making the recession real

Need more evidence that the economy has turned down? An overwhelming majority of chief financial officers surveyed for this month’s CFO Forum - 86.7 percent - say that their companies have already experienced the effects of an economic downturn. Of this group, 53.1 percent say revenue has declined from a year ago, while 36.7 percent have seen a falloff in orders, presaging a further slowdown to come this year.

Surprisingly, however, only 10.2 percent of CFOs say their companies’ earnings have declined, suggesting that their organizations have been able to put in place effective expense controls. And make no mistake: Cost-cutting seems to be the solution of choice to address declining revenue. Only 30.2 percent of CFOs of companies that have experienced signs of a business slowdown say their companies have increased marketing expenditures in an attempt to bring in more revenue, while 64.2 percent say that price discounting is not in their game plans despite the tougher environment. But 94.3 percent have increased efforts to reduce costs, including 32.1 percent who say they have actually cut back on marketing expenditures to save money.

Employee layoffs are perhaps inevitable in a downturn, so the real surprise is that more than a third of companies - 34 percent - have so far avoided layoffs as a means of cutting costs, despite declining revenues. Still, 73.1 percent have cut back on plans to recruit new employees. That means, of course, that jobs will be harder to come by, both for those who have been laid off as well as for those about to enter the workforce.

Among those CFOs who say their companies have not experienced a slowdown, 50 percent have higher revenue than a year ago, while 33.3 percent have seen orders increase - a good sign for the future. But even for these companies, recruiting new employees is a low priority, with only a third of these companies stepping up recruiting. Of these fortunate companies, 62.5 percent are investing in increased sales and marketing expenditures to generate more revenue, while 22.2 percent are cutting back on discounting to firm up their companies’ net income.

Economic slowdowns usually last more than a few months. Still, despite efforts by the administration and the Federal Reserve Board to invigorate the economy with tax and interest rate cuts, fewer than six in ten CFOs - 57.1 percent - expect the economy to rebound in the next 12 months. More than 30 percent expect the economy to stay stalled at about the same level as it is now, while a gloomy 12.5 percent think that 2002 will end in worse shape than it begins.

Is your company seeing signs of an economic downturn?