Economic Optimism Slumps, Execs Anticipate Double-Dip Recession


Economic optimism dropped to a two-and-a-half year low as more than 60% of CPA financial executives thought it was likely the U.S. would experience a double-dip recession, according to results released Wednesday from the AICPA Business & Industry Economic Outlook Survey Q3 2011.

Optimism for the U.S. economy significantly dropped this quarter to 9%, which is nearing the record lows for optimism seen in this survey. At the end of 2008 and start of 2009, optimism for the U.S. economy bottomed out at 5%. This quarter’s level of 9% is down from 33% last quarter and nearly 50% in the first quarter of 2011. Overall pessimism grew this quarter, with 59% of respondents reporting they were very pessimistic or pessimistic about the U.S. economy, up from 27% last quarter. The remaining 32% of respondents were neutral.

Optimism for respondents’ own organizations dipped this quarter as well, but not as dramatically as optimism for the U.S. economy. Overall, 41% were optimistic or very optimistic about economic prospects for their own organizations over the next 12 months, down from 54% in the previous quarter. Twenty-one percent were pessimistic or very pessimistic about the prospects for their own organizations, and 38% were neutral. By industry, CPA executives in the technology sector were the most optimistic, while those employed by health care providers and construction companies were the most pessimistic. Respondents employed in retail trade, which was among the top two most optimistic industries in the first half of 2011, were much less optimistic this quarter, with organizational optimism dropping to 35% (down from 70% in the first and second quarters of 2011).

The combination of a sharp decline in U.S. optimism, paired with muted declines in organizational optimism and expansion plans, mirrors what occurred between the third quarter of 2007 and the first quarter of 2008 when the economy was entering a recession. More than 60% of respondents in the most recent survey said they considered a double-dip recession either somewhat or very likely to occur. Thirty-six percent thought it was somewhat or very unlikely that the U.S. economy would fall into a double-dip recession, and 3% were unsure.

Driven by declining expectations for the U.S. economy, organization prospects and expansion, the CPA Outlook Index (CPAOI) dropped from 66 last quarter to 58. The CPAOI measures survey participants’ sentiment about the U.S. economy and their own organizations, expectations for revenues, profits and headcount, and plans for spending.

“For the second consecutive quarter, the CPA Outlook Index declined as turbulence in the political and economic environment eroded the sense earlier this year that a recovery was taking hold,” said Carol Scott, CPA, AICPA vice president—Business, Industry & Government, in a press release.

A reading above 50 indicates a generally positive outlook with increasing activity. A reading below 50 indicates a generally negative outlook with decreasing activity. Click here for a full description of the CPAOI, including the measures used in the index and how each component is calculated. This quarter, all nine indicators used to calculate the index dropped.

Concerns about inflation also declined this quarter. Only 38% of respondents indicated they were concerned about the possibility of inflation for their business over the next six months, down significantly from 61% in the second quarter of this year. Concerns about the possibility of deflation increased, but remained low at 13%. The remainder were unconcerned about either (40%) or were unsure (9%). For those concerned about inflation, raw materials costs remained the primary concern, with 33% considering it the most significant risk to their business, but concerns about labor costs were rising (up to 23% from 17% in the second quarter) and passed energy costs (17%) as the second most significant risk.

Employment and Performance Indicators

The survey indicated that there’s no near-term recovery in hiring expected. Ten percent of respondents said they had too few employees and were planning to hire in the immediate future, which is down from 12% in the second quarter of 2011. The respondents who said they did not have enough employees but were hesitant to hire remained unchanged at 21%. Nearly 60% said their organization had the appropriate number of employees. By industry, respondents from the technology sector and health care providers expected the largest increases in hiring.

CPA financial executives’ expectations for growth in other performance indicators, including revenue and profit growth, declined for the second straight quarter. Sixty-one percent said their organization expected an increase in total revenue over the next 12 months (down from 68% in the second quarter), and 55% expected total profits to increase, down slightly from 57%. On the other hand, 27% expected revenue to decrease, while 31% expected profits to decline.

For the first time in a year, employee health care costs dropped from the second spot on the list of top challenges for respondents’ organizations to No. 4; it switched spots with political and economic stability, which had been at No. 4 the previous two quarters. Customer demand remained No. 1 and regulatory requirements No. 3. Materials and supplies costs rounded out the Top 5 for the third straight quarter. 

Full survey results are available at The survey, conducted Aug. 10–29, includes responses from 1,305 CPA financial executives in business and industry. Forty-eight percent of survey respondents were CFOs; 23% controllers; 11% vice presidents or COOs; and 10% CEOs or presidents. Sixty-five percent of respondents work for privately owned entities; 16% for public companies; 12% in government or education or for associations or nonprofits; and 6% for foreign-owned companies. Ten percent came from organizations with annual revenues of $1 billion or more; 22% from organizations with $100 million to under $1 billion; 46% from organizations with $10 million to under $100 million; and 23% from organizations with under $10 million in revenues. 

Megan Pinkston ( ) is the JofA’s senior online editor.

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