CFO SURVEY: EXPECT FURTHER HIKES IN INTEREST RATES

April 23, 1997, DURHAM, N.C. - CFOs see further increase in interest rates in 1997, according to the most recent Financial Executives Institute/Duke Fuqua School of Business Corporate Business Outlook Survey

Chief financial officers responding to the survey say there's a 60 percent chance of a hike in short-term interest rates by the end of June. The CFOs put the likelihood of an interest rate increase during the next four quarters at 76 percent.

"The interest rate results tell only half the story," said Duke Professor Campbell Harvey, co-director of the FEI-Duke survey. "We also ask financial executives about capital investment plans, research and development expenditures, merger and acquisition activity, and employment -- all of which are sensitive to changes in interest rates. While there is some weakening in some of the survey's indices, CFOs are saying they expect a strong showing in 1997."

For each index, a value of 100 means that 100 percent of the respondents believe that investment will increase and a value of -100 means that 100 percent of the respondents believe that investments will decrease.

The survey was conducted between April 7 and 10, well after the Federal Reserve's most recent action on short-term rates and after the long-term Tresury bond yield had gone beyond 7 percent.

Additional findings:

The survey's index of capital investment for the second quarter increased to 46 from the 40 registered in the first quarter survey, but still is well below the 52 registered in the third quarter of last year.
Research and development expenditures plans continued to slow. The R&D index, at 22 for the second quarter of 1997, has dropped 2 points in each of the four surveys from the 28 registered in the third quarter of last year.
Employment plans are virtually unchanged for the next quarter and for the next year. The employment indices registered insignificant declines.
The merger and acquisition index registered a minor decline over the next quarter. "There are some indications that the torrid pace of M&A activity is waning," said Duke Professor Michael Bradley, survey co-director. "Our index, which measures longer-term M&A plans, declined from a level of 32 to 27 in the most recent survey."
Corporate earnings over the next four quarters will continue to be strong, according to the FEI-Duke survey. The earnings index registered an insignificant decline from 70 to 69. The survey also suggested little change in dividend payouts, issuance of long-term debt and equity offerings. "This further supports the view that business will continue to be strong -- except that it will be in a higher-rate environment," Harvey said.

"While the impact of higher interest rates will vary from company to company," said FEI Chairman Frank J. Borelli, CFO and senior vice president of Marsh & McLennan Companies, "overall the results of our survey bode well for business's ability to absorb higher interest rates."

The questionnaire was faxed to 2,500 chief financial officers who are members of FEI from a cross-section of U.S. businesses. The survey is conducted at the beginning of each quarter.

Financial Executive Institute is the leading advocate for the views of corporate financial management. Its 14,000 members hold policy-making positions as chief financial officers, treasurers and controllers at 8,000 companies throughout the United States and Canada.

The Fuqua School of Business at Duke University was founded in 1970. Fuqua's mission is to provide the highest quality education for business and academic leaders and to promote the advancement of the understanding and practice of management through research.