• by Joe Mandese  @mp_joemandese, December 18, 2003

As ad industry pundits joust over just how much the outlook for U.S. ad spending has improved - or hasn't - a far more relevant source, the chief financial officers of U.S. marketers themselves, have grown overwhelming positive in their plans for advertising and marketing spending, according to a highly respected study of financial executives.

The report, the Year-End "CFO Outlook Survey," which was released Wednesday by Financial Executives International and Duke University's Fuqua School of Business, finds that nearly two-thirds (59.8 percent) of CFOs have grown "positive" about their expectations for advertising/marketing spending over the next 12 months (relative to the previous 12 months). That's a marked improvement from the fourth quarter of 2002 when less than half (47.2 percent) of CFOs had a positive outlook on marketing expenditures (see table below).

Currently, only 10.9 percent of the CFOs had a negative view of marketing spending (down from 17.7 percent a year ago) and less than a third (29.3 percent) view it as flat (down from 35.0% a year ago).

CFO Expectations* For Ad/Marketing Spending

2002    2003     Difference 
Positive     47.2%   59.8%   +12.6 points  
"Zero"       35.0%   29.3%    -5.7 points 
Negative     17.7%   10.9%    -6.8 points 

Source: Year-end "CFO Outlook Survey," conducted by Financial Executives International (FEI) and Duke University's Fuqua School of Business. *"Relative to the previous 12 months, what will be your company's percentage change during the next 12 months."

The findings are significant, because unlike advertising and media industry pundits who try to guess what their clients spending might be, the CFOs presumably know based on their own internal, general industry and overall economic intelligence. As such, their guidance may be even more significant than the sentiment of corporate marketing departments that ultimately must get their budgets approved by finance.

As a result, Madison Avenue has begun placing greater weight on the underlying financial health of advertisers as a key indicator of advertising budgets, particularly among the largest national advertisers.

The upbeat CFO outlook is also consistent with a quarterly tracking analysis of quarterly earnings results among the 100 leading national advertisers compiled by MediaDailyNews, whose actual results have been steadily beating their earnings estimates.

In fact, the upswing in marketing expenditure optimism reflects a broader improvement in CFO outlooks for capital spending overall.

"Corporate America is beginning to loosen their purse strings, and they're beginning to hire as well," said John Graham, a finance professor at Duke University and the director of the survey. "These are key drivers to a robust economy."

Capital spending numbers are up sharply, according to the executives. An increase in capital spending in 2004 is expected at 63 percent of the companies, with an average increase of 5 percent, compared to an expected 1 percent increase six months ago. Nearly 40 percent of firms are spending at normal levels, and another 16 percent are making ambitious investments in capital expenditures. These numbers are up sharply compared to all other quarters during the past year. The expected increase in technology spending is a strong 6 percent.

Employment is also beginning to pick up. Two-thirds of the surveyed companies plan to increase their number of employees in 2004, and only 14 percent expect to reduce employment. Overall, the number of employees should increase by 2 percent in 2004. These numbers are up sharply from six months ago, when no employment growth was expected.