Finance executives’ outlook on U.S. economy improving, survey shows

BY KEN TYSIAC

CPA financial executives displayed a more positive but still wary view of the U.S. economy in the most recent quarterly Business and Industry Economic Outlook Survey, released Thursday by the AICPA.

Those indicating optimism for the U.S. economy increased from 19% in the previous quarter to 43%. Optimists outnumbered pessimists by nearly 2 to 1, and optimism was just five percentage points short of the 48% measured in the first quarter of 2011.

“It’s still a cautious optimism out there,” said Jim Morrison, CFO of Pawtucket, R.I.-based materials science company Teknor Apex and chairman of the AICPA’s Business & Industry Executive Committee. “I don’t think people are ready to get on the bandwagon and say we’re in for 3%, 4%, really robust growth in the next few years. But I think they’re feeling better about it.”

Results of the AICPA survey of 1,358 CPA decision-makers conducted between Feb. 15 and March 1 reflected other encouraging economic indicators for the United States. On Feb. 28, the Dow Jones industrial average closed above 13,000 for the first time since May 2008. New U.S. unemployment benefit claims also have been near four-year lows in recent weeks.

The CPA Outlook Index, which measures CPA decision-makers’ sentiment about the U.S. economy, rose and matched its mark from the first quarter of 2011. The index measures optimism across nine components; its overall score of 69 for the first quarter is tied for its highest mark since the third quarter of 2007, when the index was at 72. After increasing six points in the fourth quarter of last year, the index rose another five points this quarter.

CPA financial executives’ expected growth in revenue, profits, and number of employees all rose from the previous quarter. The profit and employee growth predictions matched the numbers from the first quarter of 2011, which saw the highest marks in those areas since the fourth quarter of 2007.

Nonetheless, it appears that the recent recession continues to have a lingering effect on the U.S. economic outlook, particularly on jobs. Despite an increase of four percentage points over last quarter, the number of respondents who expect to hire in the short term is still just 14%. One in five indicated they have too few employees, but are hesitating to hire until further uncertainty is resolved. Fifty-seven percent indicated that they have the right number of employees.

Morrison said the stagnant hiring plans reflect executives’ continued concerns over the economy as a whole.

“You don’t want to be hiring people and then get stuck with the idea of having to let a few people go,” he said. “ … You’re trying to retain good people right now and get through this still-uncertain time period until you really get some real solid footing before you start adding significantly to the workforce.”

The technology sector showed the greatest expectation for hiring, followed by the “healthcare other” sector (pharmaceuticals, medical device suppliers, etc.) and manufacturing. Morrison said the manufacturing hiring expectations were an encouraging development for the economy because that sector can lead a new growth phase.

Despite rising gasoline prices, just 37% of respondents expressed concern about inflation. That’s down significantly from 61% in the second quarter of 2011. Raw material costs, energy prices, and labor costs were the top factors cited by those who were concerned about inflation.

Morrison said rising prices for raw materials would be a result of a lack of supply.

“You had a lot of shutdowns of capacity that basically is not coming back,” Morrison said. “ … So what they’ll have to do is build new, productive capacity that sometimes takes years to bring on … and they don’t want to spend those big bucks until they’re really certain that we are in a growth spurt over the next three to five years.”

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

More from the JofA:

 Find us on Facebook  |   Follow us on Twitter  |   View JofA videos

SPONSORED REPORT

How to make the most of a negotiation

Negotiators are made, not born. In this sponsored report, we cover strategies and tactics to help you head into 2017 ready to take on business deals, salary discussions and more.

VIDEO

Will the Affordable Care Act be repealed?

The results of the 2016 presidential election are likely to have a big impact on federal tax policy in the coming years. Eddie Adkins, CPA, a partner in the Washington National Tax Office at Grant Thornton, discusses what parts of the ACA might survive the repeal of most of the law.

COLUMN

Deflecting clients’ requests for defense and indemnity

Client requests for defense and indemnity by the CPA firm are on the rise. Requests for such clauses are unnecessary and unfair, and, in some cases, are unenforceable.