Finance leaders regained some confidence about the U.S. economy, but their outlook remained far darker than it was before the coronavirus pandemic, according to the fourth-quarter Business & Industry Economic Outlook Survey released Thursday by the AICPA.
About 37% of respondents contacted Nov. 10–Dec. 2 were optimistic about the domestic economy. That represents a significant gain from the third quarter, when just 24% expressed optimism. The nine-segment CPA Outlook Index, a broad measure of sentiment, rose to 62 from 54 the last quarter (see the chart below). For some, a new viral outbreak threatened to wrest the gains of a meager recovery, but the pandemic also had opened up new possibilities.
“It could go either way at this point. We’re just sitting on the fence,” said Tisha Tarter, a CPA candidate who is the controller for Express Oil Change & Tire Engineers, a chain of 12 auto-service stores headquartered in Dothan, Ala.
Tarter was concerned that growing viral outbreaks could lead to new restrictions.
“We’ve finally been able to get going again, get staffed,” she said.
A new stimulus program could be complicated, too. The previous $600-a-week unemployment benefit made it difficult to hire and retain lower-wage staff, she said.
Even so, sales have been surprisingly strong since the company overcame the initial hurdles, including by brewing its own batch of hand sanitizer from a drum of isopropyl alcohol. A loan from the federal government’s Paycheck Protection Program (PPP) defrayed the costs and has since been forgiven.
Now, the company is moving ahead with plans for a new store.
“We’ve gotten all the permits; we’re up to the groundbreaking point,” Tarter said. “You can’t stop what you’re doing. You can’t put the world on hold.”
The pandemic has inspired new ventures for others, too. In Miami, Gladys Lavina-Ortega, CPA, decided to set out on her own, leaving behind a contracting gig that had made up a sizable chunk of her income.
“I kind of always wanted to go off on my own, but I never had the guts to do so,” she said, describing the period of change as a “perfect opportunity.”
She has already built a large enough clientele to sustain herself, including food catering clients who have thrived by selling to homebound families, she said. She has also bolstered her client services by providing PPP help to restaurants.
She was optimistic that new vaccines would soon spur a recovery, putting the worst of the pandemic in the past. “It’s a time when companies are being very risk averse, holding tight with their cash — but doing OK,” she said.
Forty-seven percent of the survey respondents expected their businesses to expand in the next year. But many are bracing for a longer economic hangover. Domestic economic conditions were the top concern, followed by domestic political leadership, availability of skilled personnel, and regulatory requirements and changes.
While restaurants and retail may recover as public life resumes, the fallout may not arrive for months longer for companies reliant on government spending, said Amy Zeigler, CPA, controller for Southern Traffic Services.
Zeigler’s company provides traffic monitoring services, mostly for governments in the Southeast. She worries that the company will hit belated turbulence as the downturn ripples through government budgeting cycles.
“Right now, all our contracts are safe. Our outlook for the next 12 months is fine,” she said. “But I believe the state funding is a lagging indicator.”
In response, the company is hustling to build up its higher-margin data collection contracts.
“But if funding gets slashed significantly — we’ve talked about it, and there’s just not that much we can do because we’re so reliant on state funding,” she said.
Others are also bracing for extended challenges in the years to come.
The survey came amid an extended debate about a potential second stimulus package. Nearly half of respondents said that federal aid would have to arrive within six months to be effective, while 27% said it wasn’t needed. More than half (54%) said their business would be negatively affected if a stimulus package does not materialize this year or in 2021, and 34% said additional stimulus would not have an impact on their business.
Making progress in controlling COVID-19 was cited by 83% as one of their top three most helpful federal actions, followed by avoiding “overly burdensome regulation” at 52%, keeping the corporate tax rate low (35%), and providing stimulus targeted to individuals and families (32%).
The election results have not given respondents much clarity for business forecasting. Forty per cent said the most significant wild card remains control of the pandemic, and 26% said it was too early to tell what changes in Washington would mean. Twenty-eight per cent said the election outcome had given them the ability to extrapolate some signals, and 6% said the results gave them significantly more clarity on business forecasting.
Scott Muller, CPA, is the CFO of Consumers Power Inc., an electric cooperative in Philomath, Ore. The utility company has weathered the coronavirus without excessive disruption; drops in demand from its business customers were offset by increased power usage at residences.
Muller is “optimistic, but not overly optimistic,” he said.
The company will be dealing with past-due accounts, bad debt, and write-offs for months to come, he said. Its margins are smaller because it opted to skip a yearly rate increase amid the pandemic. And it’s also continuing its capital spending to mitigate wildfire risks after another catastrophic fire season in the western states.
“People get into a pretty good feeling on handling the pandemic, working remotely, and then something else will occur, like the wildfires and windstorms, that will just continue to tap your resources,” he said.
Other survey highlights:
- 27% of respondents are optimistic about the global economy for the next 12 months, compared with 17% who were optimistic a quarter ago.
- Companies’ greatest pandemic-related concerns, at 25% each, were the safety of employees and customers and uncertainty regarding the lifting or re-imposing of stay-at-home orders.
- 41% of respondents said staffing levels were lower than before the pandemic, and 46% said they were at the same number of workers as before the pandemic.
- 28% said they expect staffing to return to pre-pandemic levels within the next one to two years, and 14% said they did not expect their organization to return to pre-pandemic staffing levels within the next few years.
CPA Outlook Index
— Andrew Kenney is a freelance writer based in Colorado. 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.