Domestic employment is expected to fall and inflation is expected to increase by 4.1 percent. Capital spending plans have been scaled back for the third consecutive quarter.

These are some of the findings of the second quarter 2008 Duke University/CFO Magazine Global Business Outlook survey, which asked more than 1,000 CFOs from a broad range of global public and private companies about their expectations for the economy, including 468 CFOs interviewed about the U.S.

"This could be the longest slowdown since the double dip recession of 1979-81," said John R. Graham, director of the survey and a finance professor at Duke's Fuqua School of Business. "Our survey indicates that CFO optimism is bottoming out near record lows. Even more worrisome, there is evidence of stagflation -- slow economic growth and rising unemployment combined with inflation."

High fuel costs and weak consumer demand are the top concerns among CFOs. Credit markets and difficulty in attracting and retaining high quality employees are also significant worries.

"In recent years, U.S. companies have largely shrugged off increasing fuel costs," said Kate O'Sullivan, senior writer at CFO Magazine. "This quarter, for the first time in the history of our survey, fuel costs are tied as the top corporate concern. Significantly, also for the first time, a majority of companies tell us they have taken explicit actions in response to increased fuel costs."

Six out of 10 CFOs say their firms have taken steps to reduce the impact of rising fuel costs. Among these firms, 45 percent have passed the higher input costs along to their customers by raising prices. Another 45 percent have reduced business travel, 43 percent have improved facility management efficiency, and more than one-third have shifted to more efficient shipping methods. Another one-fourth say their companies have reduced their profit margins because of high fuel costs. Thirteen percent have increased the use of financial derivatives to hedge high fuel costs.

Among firms directly hurt by the credit crunch, 58 percent say credit is hard to find, and nearly half say their borrowing costs have increased (by 141 basis points on average). Among these same firms, nearly 60 percent say they will reduce investment or hiring in response to the adverse economic conditions.

CFOs expect the employment picture to worsen. They plan to reduce domestic workforces by 0.2 percent. At the same time, the CFOs say prices of their own products will rise by 4.1 percent over the next 12 months. This grim outlook for consumers is compounded by capital spending that is expected to rise only 2.3 percent, and earnings growth of only 2.9 percent.

With nearly 40 percent of all surveyed firms delaying, reducing or cancelling new investment plans, economic growth will be severely compromised. Indeed, CFOs' investment plans over the next six months retreat from the already modest plans of the past six months.

"For the last several quarters, CFOs reported bad news and more bad news. This quarter, we're seeing bad news with a little bit of good news," remarked Duke Professor Campbell R. Harvey, the founding director of the CFO survey. "The bad news is that the credit crisis is devastating lower-rated firms. Eighty-two percent of these companies have been hurt directly by the credit crunch, with the cost of credit increasing by a staggering 331 basis points among firms rated B or lower," Harvey said.

On the positive side, the level of optimism has improved. "In the fourth quarter of 2007 and the first quarter of 2008, pessimists outnumbered optimists by an 8 to 1 margin. This quarter, the ratio has improved to roughly 3 to 1, potentially indicating stabilization," Harvey said.

In reference to market buzz about the Fed increasing interest rates later this year, Harvey cautioned against reversing the lowered interest rates that have helped the economy. "This is not the time to cut off the meds," he said.