Economic Optimism Levels Off, Execs Concerned About Government Policies


Optimism among CPA financial executives about the U.S. economy flattened after two quarters of improvement as managers paid more attention to potential challenges and concerns associated with the federal budget deficit, tax reform and regulatory requirements, according to a survey released Monday.


Results from the Economic Outlook Survey Q4 2009, conducted by the AICPA and the University of North Carolina’s Kenan-Flagler Business School, found that 27% of respondents were optimistic or very optimistic about the outlook for the U.S. economy for the next 12 months, though pessimists still outnumber optimists. Forty percent were very pessimistic or pessimistic, and the remainder were neutral. These percentages were virtually unchanged from the third quarter of 2009. Respondents also were more optimistic about their own organizations than about the U.S. economy as a whole (38% vs. 27%), continuing the trend seen over the past two years. Nearly 30% remain pessimistic about the economic prospects for their own organizations.


The number of executives who don’t see a recovery beginning until at least the second half of 2010 increased substantially this quarter, up to 62%, from 43% in the third quarter and 27% in the second quarter. More than 25% believe it will be 2011 before the economy begins to improve. Seventeen percent reported seeing signs of improvement now, but only another 5% expected to see improvement by the end of the year. The survey was conducted between Oct. 21 and Nov. 8.


And while a large majority of respondents (69%) believe a slow growth recovery is the most likely scenario for the economy, one-fifth of respondents have a different view: They believe the economy will experience a double-dip recession. “It’s always a danger,” said Mark Lang, a Kenan-Flagler accounting professor who analyzed the survey results. “But I think we’re starting to see a bit of a bifurcation in the survey in terms of companies’ experiences. … Those who anticipate a double-dip recovery are perhaps in particular sectors or industries where things might take longer, and there might in fact be another dip downward.” Executives at organizations providing construction, real estate and health care services were the most pessimistic on the outlook for the economy.


Much like for the U.S. economy as a whole, more executives believe it will take longer for their own companies to see improvement. Fifty-four percent of financial executives do not expect improvement until at least the second half of 2010, up from 37% in the last quarter. Nineteen percent think they’ll see improvement in the first half of 2010, which is down from 24% in the third quarter. Nearly 23% of respondents did not see a downturn in business due to the economy or are noticing improvement now.


The top three challenges facing businesses, customer demand (No. 1), employee health care costs (No. 2) and access to capital/cost of capital (No. 3), were unchanged. The most noticeable trend in the fourth quarter is the continued climb of regulatory requirements as a challenge to organizations. It ranked No. 4 among the top challenges, its highest spot to date, up from No. 9 in the first quarter of 2009, surpassing collection of receivables (No. 5) and liquidity (No. 6).


This quarter, two tracking indicators were developed to compare sentiment regarding economic outlook and expansion or contraction over time. Looking at survey results from the last three years, the Corporate Optimism Index (COI) and Corporate Expansion Index (CEI) show steady increases in optimism and expansion since the first quarter of 2009 after dropping steadily from July 2007 to January 2009, though there was a slight drop in optimism in the fourth quarter. This quarter’s survey results show a COI value of 0.52 and CEI value of 0.55. The COI and CEI were calculated by using responses to survey questions regarding economic outlook and expected expansion or contraction of respondents’ own organizations. The measures assigned a value of 0.5 to neutral, 0 to very pessimistic, 0.25 to pessimistic, 0.75 to optimistic and 1 to very optimistic, corresponding to expansion/contraction as well. For a chart of COI and CEI values, click here.


One-time questions in the survey focused on congressional action and the federal budget deficit, particularly on concerns surrounding the growing deficit and action to reduce it. Fifty-six percent of respondents felt it was critically important for Congress to act on deficit reduction, and another 28% felt it was important. Only 1% did not think it was important at all. While respondents thought this was the most critical issue facing Congress, other issues were deemed critically important by respondents, such as tax reform (26%) and financial regulatory reform (20%). Respondents were split on health care, with 19% considering it critically important and 20% not important at all. A majority of respondents (53%) rated a second stimulus package as not important, with only 2% considering it critically important, and 40% did not consider climate change an important issue for Congress.


Respondents noted they were very concerned that the size of the federal budget deficit would impact their organizations in a number of ways. Fifty-one percent indicated they were very concerned it would lead to increased future taxes, while another 24% are at least concerned about that outcome. Only 5% were not concerned at all about an increase in taxes. Financial executives were also very concerned that the federal budget deficit would lead to an increase in future inflation (38%) and contribute to continued weakness of the dollar (26%). Only 12% were very concerned about decreased future government spending necessary to tame the deficit, while 36% were not concerned at all.


“It’s clear they anticipate substantially higher taxes going forward. There’s a lot of concern about tax policy. If you ask what the priorities of the government should be, they don’t particularly want the government involved in their business. We see that with their concern about additional regulatory involvement,” said Lang.


And while optimism has stabilized after improving during the first half of the year, concerns about a slow and distant recovery are prompting CPA financial executives to take cost-saving measures. Nearly 13% of respondents plan to lay off workers in the future, either for the first time or again if they’d previously done so. Respondents also expected further cuts in capital spending (12%), compensation freezes and travel restrictions (11% each). Fifty-six percent said they had already implemented compensation freezes, the most-cited measure, followed by capital spending cuts (52%).


Despite the slight increase (up 3% to 51%) in the percentage of respondents who have had layoffs, survey results show that hiring prospects for the next 12 months are modestly improving. Twenty-eight percent said they expect to increase the number of employees at their business, up from 25% last quarter; 30% plan to decrease the number of employees, down from 34% last quarter.


Full survey results are available at The survey includes responses from 1,201 CPAs in business and industry. Sixty-six percent were CFOs, 25% were controllers, and 4% were CEOs or COOs. Sixty-eight percent of respondents work for privately owned entities; 11% for public companies; 14% for government, education, associations and nonprofits; and 5% for foreign-owned companies.


Video: Click here to see UNC Professor Mark Lang discuss the results of the fourth quarter survey.


Megan Pinkston ( is the JofA’s online editor.

Where to find May’s flipbook issue

The Journal of Accountancy is now completely digital. 





Leases standard: Tackling implementation — and beyond

The new accounting standard provides greater transparency but requires wide-ranging data gathering. Learn more by downloading this comprehensive report.