Optimism in the domestic and global economies slipped this quarter, with concerns about trade disputes, tariffs, and worker shortages voiced in a quarterly survey of U.S. finance executives.
"There's got to be an adjustment at some point," said Joselin Martin, CPA, CGMA, about the booming economy. Martin is the CFO at Hayles & Howe, an ornamental plasterwork company in Baltimore that is a spinoff of the U.K. firm with the same name.
Despite the concerns, her company has done well this year, a sentiment that mirrors that of other finance professionals. Hayles & Howe's biggest challenge is finding enough workers for renovations at iconic buildings around the nation.
"We're managing growth at this point, which is great," Martin said.
The fourth-quarter Business & Industry Economic Outlook Survey, released Thursday by the Association of International Certified Professional Accountants, shows a decrease in all but one of nine components of the CPA Outlook Index (CPAOI). That includes drops in optimism about the U.S. economy, finance decision-makers' own organizations, expansion plans, revenue, profits, and spending plans. The survey was conducted Nov. 7–28 and includes responses from 938 CPAs in executive roles — primarily CEOs, CFOs, controllers, and finance directors.
The overall CPAOI is 76, a drop from 79 the previous quarter but still reflecting positive sentiment overall. The index was at a post-recession high of 81 during the first quarter. The index had risen or remained steady in eight of the previous 10 quarters since dropping five consecutive quarters in 2015 and early 2016. A reading above 50 indicates a generally positive outlook.
Souring economic outlooks
Fifty-seven percent of finance executives are optimistic about the U.S. economy, a drop of 22 percentage points from the first quarter and 12 percentage points from the previous quarter.
There was even less optimism regarding worldwide prospects, with 40% holding a favorable outlook on the global economy and 43% saying they were neutral.
"There is a sense of that uneasiness potentially looming on the horizon," said Traci Leffel, CPA, CGMA, finance director for Rocket Industrial, a packing supplies company based in Wausau, Wis.
While the company had double-digit sales growth this year and is projected to do the same next year, leaders at the company have begun making contingency plans and running through scenarios in the event of an economic downturn.
The plan is not only to weather any economic storm, but also to grow.
"Even if the economy is down, we may be able to grab market share," Leffel said.
Expansion still up
Even with some uncertainty, plans for expansion for U.S. businesses remained high, with 67% of respondents expecting to expand their business over the next year. That's down from 71% a year ago.
Among those feeling good are the leaders of Micro 100 Tools, a privately owned super carbide tool manufacturer in Meridian, Idaho.
Mick Armstrong, CPA, CGMA, Micro 100's CFO, said the company is overhauling its sales and marketing approach. New talent coming in will use a more digitally based approach to target end users of the tools, not just distributors.
That effort is aimed at driving sales growth, Armstrong said, and is needed after the manufacturer saw competitors grow at more rapid rates.
"We're going to retake shares that we had lost over the last five to eight years," Armstrong said.
Worker shortages top of mind
Twenty-eight percent of finance leaders said they had too few workers and were planning to hire in the next few months, while 14% more said they had too few workers but were holding off on hiring. That's largely on par with the previous year, when 25% planned to hire and 13% had too few workers but were hesitant to hire.
Finding those needed workers isn't easy.
Finance executives in the survey identified availability of skilled personnel as their top concern, followed by employee and benefit costs, domestic competition, and regulatory changes. It's the sixth consecutive quarter that availability of skilled personnel has been the top challenge in the survey.
Meeting labor needs has been one of the biggest hurdles for Micro 100. The company needs people with advanced math skills, including trigonometry, to operate the specialized grinding machines, but also a desire to roll up their sleeves and dive into the machinery aspect of the job, Armstrong said.
"Skills gap is a really big thing," he said, adding it can take up to three years for a worker to master the process.
Finding skilled workers has been equally challenging for Hayles & Howe, the ornamental plasterwork company.
Nearly two-thirds of the craftsmen doing work on scaffolding come from the legal immigrant pool, primarily Latin American countries, Martin said. The flow of workers has slowed in recent months because of a more stringent immigration policy of the administration of President Donald J. Trump.
"They can't get in, or they're scared to come in," Martin said, adding that Hayles & Howe uses a U.S. government service called E-Verify to ensure workers are in the country legally.
The solution, Martin said, is to turn to more temporary workers, a fix that's not ideal for meeting contract obligations.
Some companies are addressing a tight labor market with improved pay and benefits. Nearly half of respondents (48%) said they planned to increase salaries or commissions to help retention and recruitment in the next 12 months, and 18% said they planned to offer improved benefits.
For current employees, 87% planned to offer wage increases in the coming 12 months, including 62% who foresee increases of 3%–5%.
The survey also showed that:
- Revenue for the coming 12 months is projected to rise 4.3%, which is a decline from 5% a quarter ago and 4.8% a year ago. Profits are projected to rise 3.4%, down from 4.3% a quarter ago and 3.8% a year ago.
- Health care costs are projected to increase by 5.3% in the next 12 months, the lowest projected rate of increase since the third quarter of 2009.
- Projected IT spending is increasing, but at its lowest rate since the second quarter of 2017.
About the CPAOI
The survey measured the sentiment of high-ranking finance professionals in business and industry in nine areas: U.S. economic optimism, organization optimism, expansion plans, revenue, profits, employment, IT spending, training and development, and other capital spending.
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.
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%]).
— Sarah Ovaska-Few is a freelance writer based in North Carolina. To comment on this article or to suggest an idea for another article, contact Neil Amato, a JofA senior editor, at Neil.Amato@aicpa-cima.com.