US finance executives strongly positive about 2018

By Neil Amato

Companies are in expansion mode in the United States, according to a quarterly survey of finance executives.

Spending on IT and employee training is slated to continue rising, and projections for revenue and profit are growing as well.

A nine-component measurement of economic sentiment, the CPA Outlook Index (CPAOI), is at its highest level, according to the latest Business & Industry Economic Outlook Survey, released Thursday by the Association of International Certified Professional Accountants. The CPAOI is at 79, surpassing the previous high of 78 in the fourth quarter of 2014.

The 10-year-old index’s rise is spurred by optimism about revenue (an index measure of 85) and the U.S. economy (84), increases of seven points and eight points, respectively, from a year ago. A reading above 50 indicates positive sentiment.

The current survey was completed before the Senate passed a tax reform bill that would lower the top corporate tax rate from 35% to 20%.

Other data back up the positive sentiment of finance decision-makers. The quarterly Business Roundtable survey shows that a strong segment of CEOs predicts continued growth in 2018. In that survey, also completed before the Senate passed its version of tax reform, CEO plans for capital investment hit their highest level since the second quarter of 2011.

Survey responses from three finance executives are representative of the positive sentiment: They expect growth in 2018 and beyond.

One is Melissa Ruby, CPA, the controller at Melton Truck Lines in Tulsa, Okla. Melton plans to grow its fleet of flatbed trucks by about 5% in the next year, to nearly 1,400. The company continues to make investments in safety features such as dashboard cameras and lane-awareness technology.

“We believe it’s cost-effective because it not only prevents accidents, but it’s a training tool as well,” Ruby said.

The company can use data from cameras to instruct drivers on avoiding sharp turns, for example.

Ruby said data she has seen point to 2018 being a strong year for Melton. For instance, the Institute for Supply Management’s Purchasing Managers Index (PMI) is at 58.2, which, while slightly lower than the previous three quarters, is much higher than the previous two years. In November 2016, the PMI was at 53.2. In November 2015, it was 48.6.

“When the [index] falls below 50, it generally means there will be fewer loads out there,” Ruby said. “The [index] has been over 50 for some time now, so we are expecting more loads out there for us to get.”

Expansion in California

Shan Staka, CPA, CGMA, the CFO of Western Foods Co., a California producer of gluten-free flour and other food products, said the company is a few months away from opening a production facility in Pine Bluff, Ark. The company, which employs about 100 now, is expecting to hire up to 50 new workers for the Arkansas location in the next five years.

“We are installing equipment in the building now so we can expand,” Staka said. “It’s a growing market.”

In the survey, the top challenge for the second consecutive quarter is availability of skilled personnel — which is also an issue for Staka’s company.

“Working in a flour mill is a type of art,” Staka said. “It takes a long time to learn the skills. It’s not like a manufacturing booklet can tell you what you need to learn. You need to learn through experience.”

Experience has taught Juan Valdes that, despite operating in a highly regulated industry, demand for wine should continue to be strong in 2018 and beyond. Valdes is the vice president and controller at Delicato Family Vineyards, a family-owned company in California that is the sixth-largest winery in the United States. Delicato produces about 10 million cases of wine annually and sees demand continuing to grow.

Valdes said three factors are driving optimism for Delicato. The first is that economic conditions are generally good with a low level of unemployment, which gives consumers more disposable income. The second is increased wine consumption in the United States, which is expected to continue steady growth. The third is Delicato’s strong partnerships with the leading distributors of wine and spirits in the United States.

“Those things make us optimistic not only next year but also for the next three to five years,” Valdes said.

While state, local, and industry-specific regulation has been cumbersome, and hiring is at times difficult, Valdes said the company is optimistic about its future performance. One other item that could be positive for the industry in general is the proposed reduction in the federal excise tax levied on beer, wine, and spirits. Valdes said this reduction would result in lower costs.

Shuffle among top challenges

For many recent quarters in the survey, regulatory requirements and changes were listed as the top challenge. This quarter, regulation has dropped to third, behind the availability of skilled personnel and domestic competition.

The diminished concern for regulatory red tape aligns with sentiment in a survey from the National Association of Corporate Directors (NACD). That survey found that 29% of corporate directors considered regulation a top concern for their companies, a drop from 2016 when 58% considered the regulatory environment a worry.

The NACD survey attributed that change to President Donald Trump’s administration’s deregulation focus in the United States, though it noted that any perk from looser U.S. regulatory requirements could be offset by the tightening of regulations in European and Chinese markets.

Key performance indicators

The projected rise in IT spending for the next 12 months has increased each of the past seven quarters, from 2.3% in the first quarter of 2016 to 3.6% now. The projected increase in spending for training in the first quarter of 2016 was 1.1%; this quarter, after a steady rise, it is at 2.2%. Companies project revenue to grow 4.8% and profit 3.8% in the next 12 months

Neil Amato (Neil.Amato@aicpa-cima.com) is a JofA senior editor. Sarah Ovaska-Few contributed to this article.

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