If Baby Boomers Won't Bend, CFOs Can't Spend

NEW YORK (MainStreet) -- Scratch a chief financial officer and you’ll find, under the surface, a bit of a social scientist, at least when it comes to consumer spending habits.
 
At least, this was the idea behind a CFO roundtable at the University of Virginia Darden School of Business on July 13.
 
The apparent lack of enthusiasm for spending among baby boomers, in particular, and the resulting inclination of CFOs to keep a tight rein on the corporate pursestrings -- holding back on hiring and investments until consumers start to open their wallets, were top of mind for corporate managers as they discussed the economy.

 By any measure, the last four years have taken a major toll on the consumer economy.
 
"Because of the scare of our lives, the baby boom generation is effectively out of the market from a consumer standpoint,” said one CFO. “This is part of why social and mobile technology is so important, because it targets the younger generations who are backing the market spending."
 
Ironically, top executives say the financial health of their own companies has markedly improved since 2009, the first year the university hosted the CFO roundtable. Back then, the talk was about cost containment and reducing head count. Today, it’s about growing the businesses and fattening up the bottom line.
 
Figuring out what consumers want and need is a huge part of the latter strategy.
 
"Over the years, the CFOs have become more and more confident in the ability of their companies to show strong profits with their lean cost structures," noted professor Kenneth Eades, chairman of the school’s finance department and the moderator of the roundtable. “However, the CFOs continue to lament the decrease in consumer spending, and therefore hesitate to spend their own funds.”
 
That’s led to an interesting dichotomy. Companies are making money, but they still really don’t know what consumers are going to do.
 
"Cash flows have been strong, but basic consumer demand has failed to rebound as they originally had expected," Eades said.
 
Other roundtable participants agreed.
 
"I think, again, in the general economy, a lot of people are waiting to see a turn," added one CFO. "We're waiting to see consumer spending change, and then we'll start thinking about deploying our cash. Why think about deploying it now, when we're worried about the macro trends, especially if you're in that consumer space?"
 
CFOs also pointed fingers at policy makers in Washington, noting that confusion and uncertainty over government rules, regulations and policy are causing companies to step back from investments and from adding new personnel.
 
"It is difficult to make business decisions when the rules are changing and there is no clear sense of how to interpret the new rules, such as Dodd-Frank,” Eades added. “When the government has a bias toward either incremental decisions or inaction, it is difficult to foster a business environment with leaders who want to take risks and create jobs.”
 
“Sadly, the concern about government policy and ineffectiveness has been a consistent theme during the roundtable discussions,” he noted.
 
One area where CFOs do see growth is capital spending on acquisitions. Executives also say that it will take 33 months for the U.S. job market to return to pre-2007 levels. Of course, CFOs have said that before.
 
As one CFO put it, "I've actually been saying three years now for the last three years."
  
In fact, from the timeline for an improved jobs market to the impact of regulatory uncertainty and weak consumer spending, the view from the CFO office hasn't changed much since the last time the roundtable met -- and it's reasonable to assume it won’t change drastically the next time the group meets in September 2012, as the US continues to hem and haw its way through recovery.