Finance executives show increasing optimism about their companies

U.S. finance executives’ optimism about the domestic economy cooled in the past three months, but they were more bullish about the near-term prospects of their own businesses.

CPA decision-makers are increasingly positive about their own businesses’ revenue and profit, especially when compared with a year ago. That sunny view offsets a slide in the retail sector and lingering concerns about regulatory requirements and gridlock in Washington in the fourth-quarter AICPA Business & Industry Economic Outlook Survey, released Thursday.

The survey took the responses of 1,118 finance professionals across industries, gauging their outlook in nine areas: U.S. economic optimism, organization optimism, expansion plans, revenue, profits, employment, IT spending, training and development, and other capital spending.

Those nine indicators make up the CPA Outlook Index (CPAOI), which matched a post-recession high of 69 for the third consecutive quarter.

That’s despite a lower opinion of the U.S. economy, compared with the previous quarter. Domestic economic optimism was at 56. While that is down six points from the third quarter, it’s up 20 points from the previous year, when uncertainty about the “fiscal cliff” drove domestic optimism to its lowest level in the past two years.

Organization optimism is up 12 points compared to the previous year, and the other measures in the index are up at least seven points since then. With the exception of U.S. economic sentiment, all the measures rose slightly or remained the same as the previous quarter.

Expectations for revenue and profit have risen four quarters in a row. Respondents project revenue to increase 3.6% and profit 2.7% in the next 12 months. They also project staffing to increase 1.2%, a slight drop from the previous quarter (1.3%) but well above the 0.5% projection at the end of 2012.

“There is a lot of good news in these survey results about business executives’ growing confidence in conditions, from profit expectations to plans for investment in training and technology,” Arleen Thomas, CPA, CGMA, the AICPA’s senior vice president of management accounting and global markets, said in a news release. “But it’s clear that uncertainty on the economy continues to play a major factor in hiring plans.”

Fifty-seven percent of respondents are optimistic about their own companies, up from 41% a year ago and 55% the previous quarter. Yet companies are only slightly more likely to hire than a year ago. Ten percent said they had too many employees, down from 12% in the fourth quarter of 2012, and 19% said they had too few employees but were reluctant to add staff. That number has held steady the past three quarters. Additionally, 13% said they had too few employees and planned to hire, up from 8% a year ago but down from 15% the previous quarter.

For those planning to hire, 72% say they are looking to primarily add full-time workers.

Optimists cite improvements in consumer spending and housing and construction as the most significant factors influencing their decision. “The challenges of political leadership, regulation and health care reform were cited as the most significant factors by those with a neutral or pessimistic view,” the survey said.

Dip in retail forecast

Retail optimism suffered the biggest quarter-to-quarter drop: 52% of respondents in that sector were optimistic, compared with 62% three months ago. However, that’s up from 36% who expressed optimism 12 months ago.

Retail hiring expectations also fell, from 1.8% last quarter to 1.3%. Only the healthcare sector predicts a lower increase in staffing.

The technology sector rose 13 percentage points from the previous quarter and is up 29 points from a year ago. Optimism is up year-over-year in all sectors but “health care other,” which is separate from “health care provider.”

Other key findings in the survey:

• Projections for spending on IT, training or other capital projects continued a year-over-year rise. Respondents predict a 2.9% increase in IT spending in the next 12 months, a 2.1% increase for other capital and 1.5% for training.
• Regulatory requirements and changes remained the top challenge for the third consecutive quarter. It was followed by employee and benefits costs (third last quarter, fourth a year ago), and domestic economic conditions (second last quarter, top concern a year ago).
• Few respondents suffered as a result of the recent shutdown of the federal government. Just 4% experienced significant impact, 35% experienced some impact, and 61% said they experienced no impact from the shutdown.
• Respondents have low expectations for Congress’s ability to negotiate a budget by the December 13 deadline: 85% said they were not confident, 14% were somewhat confident and 1% were very confident.

The CPAOI

Each component of the CPAOI is calculated by taking the percentage of respondents who indicated that their opinion or expectation for the metric is positive or increasing, and adding to that half of the percentage of respondents indicating a neutral or no-change response. A reading above 50 indicates a generally positive outlook with increasing activity. A reading below 50 indicates a generally negative outlook with decreasing activity.

For example, if 60% of respondents indicate an optimistic or very optimistic view, and 20% express a neutral view, the calculation of the component indicator would be 70 (60% + [0.5 × 20%]).

—Neil Amato (namato@aicpa.org) is a JofA senior editor.