Why can’t US firms fill key job openings?

Nearly half of U.S. firms say they are struggling to fill job openings in key positions and plan to increase wages more than 3 percent in the coming year, according to a new survey. And even after recent market corrections, 55 percent of U.S. companies say they think the stock market is overvalued.

The latest Duke University/CFO Global Business Outlook also explores risk management and business optimism.

The survey, which ended Sept. 4, has been conducted for 78 consecutive quarters and spans the globe, making it the world’s longest-running and most comprehensive research on senior finance executives. Results are for U.S. firms unless otherwise noted.

Employment and Wages

Ninety-three percent of U.S. companies say they have job openings in key positions and nearly half of these firms say it is difficult to fill these slots. CFOs list the difficulty in attracting and retaining qualified employees as one of their top three overall business concerns.
U.S. firms expect to hike wages 3.3 percent over the next year, with wage growth strongest in services, consulting and construction.

“CFOs say they are increasing wages in response to labor market pressures and difficulty finding key workers,” said John Graham, a finance professor at Duke’s Fuqua School of Business and director of the survey. “Employment should continue to increase over the next year but at a somewhat slower pace. All else equal, we expect the unemployment rate to remain relatively constant.”

Employment is expected to shrink over the next year in the finance, energy and agriculture industries.

Stock Market Still Overvalued

Even after the recent correction in the stock market, more than half of U.S. CFOs believe the market is still overvalued.

“CFOs are very bearish on the U.S. market,” said Fuqua professor Campbell R. Harvey, a founding director of the survey. “Our survey took place during a volatile time where there was a 10 percent market correction. Even after this drawdown, 55 percent of CFOs thought the market was overvalued.”

Risk Management Concerns

Though economic uncertainty is the top business concern across much of the globe, CFOs are worried that companies are not adequately managing risk. Almost half (44 percent) of financial executives believe firms in their own industries have become complacent about managing downside risk.

“It is especially troubling that a greater proportion, 55 percent, of CFOs in the banking industry believe their industry has become complacent about managing risk,” Harvey said.

Global Economic Outlook

CFO optimism about the U.S. economy has weakened but remains the strongest in the world. On a scale from zero to 100, financial executives rate the outlook at 60, down from 65 in the spring and 63 last quarter. As a result, business plans will soften somewhat. Capital spending is expected to increase only 2.4 percent at U.S. companies and earnings will rise only 3 percent. Merger and acquisition activity will continue, with the deals funded primarily by cash and debt.

“Finance executives are eager to help their companies start building again,” said David W. Owens, editorial director for CFO Research, “but they feel some drag from continuing uncertainties about government actions and consumer reluctance at home, and about economic conditions overseas, especially in China.”

Canadian optimism mirrors the U.S. at 60. Canadian CFOs expect median employment growth of 1 percent and capital spending growth of 5 percent.

In Europe, optimism slipped to 58 on a 100 point scale, down from 60 last quarter, but Europe continues to solidify. Capital spending is expected to increase 5.8 percent and full-time employment should rise 4 percent. Wages should grow by 3 percent. European top concerns include economic uncertainty, currency risk and weak demand.

For the first time in at least a decade, optimism is lower in all emerging regions than in North America and Europe. Asian optimism fell to 56, down from 63 last quarter. Capital spending will be flat in Asia and full-time employment will fall. Wages are expected to rise by about 5 percent across Asia. Top concerns include economic uncertainty, weak demand and currency risk. Asia will be the most active region in M&A, with firms attempting to diversify product lines and geography, and improve position within their industries.

African optimism increased to 48 this quarter, up from 43 last quarter. Employment will increase 1 percent, and wages are expected to rise by about 8 percent over the next 12 months. Capital spending will fall. African CFOs are worried about a host of issues, especially currency risk, economic uncertainty, government policies and the reliability and cost of electricity.

Latin American economic optimism plummeted to 43 on a 100-point scale. Brazil stayed at 37, Chile fell to 39. Peru has an optimism index of 55 and Uruguay 50. Full-time employment is expected to contract 1 percent and median capital spending will not change.

Mexico remains a bright spot in Latin America, with optimism of 58. Mexican firms expect to increase employment by 2.7 percent and capital spending by 1.2 percent. Seventy-three percent of Mexican companies say that it is difficult to fill key positions.

Presidential Candidates Rated (released Sept. 4)

Donald Trump leads the list of presidential candidates CFOs rated as best for business, followed by Carly Fiorina.

No single candidate received majority support. Nearly one in five U.S. CFOs (19.4 percent) said Trump would be best for their businesses, followed by 14.1 percent who favored Fiorina. Jeb Bush followed closely with 13.9 percent.

This article is published in collaboration with Duke. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Gregory Phillips is a writer at Duke University. Erin Medlyn is a writer at Duke University.

Image: Morning commuters are seen. REUTERS/Brendan McDermid.