SURVEY: U.S. Companies See Dire Consequences to Default, Political Theater Uncertainty may lead to layoffs, slower growth, fewer U.S. investments; Corporate portfolios to shift out of U.S. Treasury Securities
WASHINGTON, Oct. 7, 2013 /PRNewswire/ -- Financial executives see dire consequences to prolonged political theater in Washington and a potential U.S. government default, according to a survey released today by the Association for Financial Professionals (AFP).
On October 3-4, AFP surveyed financial executives in the corporate treasury and finance departments of a broad range of U.S. companies across many industries, receiving 964 responses. The survey found that in the near term, finance executives believe political wrangling in Washington will lead to reduced demand for goods and services and that a failure to raise the debt ceiling in time will result in reduced capital expenditures and reduced hiring or layoffs at many companies.
But the damage goes beyond just short-term consequences. Forty percent of organizations report that they are holding back on making growth-oriented investments in the U.S. because they are having difficulty evaluating U.S. investments, due to the recurring battles over budgets and debt limits.
"Companies are issuing a warning: A default will lead to lower capital investment and job losses, and slowing business activity amid an already-tepid recovery," said Jim Kaitz, AFP's president and CEO. "Companies are already expecting lower demand for their goods and services as a result of the budget and debt ceiling impasse."
Finance professionals expect lingering uncertainty emanating from Washington to impact demand for their products and services, with 41 percent expecting a negative impact on their own products and services and 35 percent expecting their companies to have decreased demand for others' products and services.
A default would make U.S. Treasury securities, an investment vehicle used in many companies' short-term investment portfolios, far less attractive. The survey found that one-sixth of U.S. organizations currently holding U.S. Treasury securities would shift out most or all of those investments if the debt ceiling isn't raised in time. Another 36 percent of organizations would hold onto their current holdings of Treasuries, but would not purchase these securities going forward.
Meanwhile, half of the respondents say that a government default would harm their organization's access to, and raise their cost of, capital. An increase in the cost of bank credit and higher cost of debt financing were each cited as possible outcomes by 27 percent of financial professionals.
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Headquartered outside Washington, D.C., the Association for Financial Professionals (AFP) is the professional society that represents finance executives globally. AFP established and administers the Certified Treasury Professional and Certified Corporate FP&A Professional credentials, which set standards of excellence in finance. The quarterly AFP Corporate Cash Indicators serve as a bellwether of economic growth. The AFP Annual Conference is the largest networking event for corporate finance professionals in the world.
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SOURCE Association for Financial Professionals