Coronavirus looms over positive economic outlook

By Andrew Kenney

Coronavirus looms over positive economic outlook

The global rise of the COVID-19 coronavirus threatened to undermine the growing economic confidence of U.S. finance leaders, who were otherwise feeling more optimistic in the first seven weeks of 2020 than in late 2019, according to the latest Business and Industry Economic Outlook Survey, released Thursday by the AICPA.

“I’m only growing more concerned about it at this point,” said Laura Terry, CPA, the CFO of the Thomas Jefferson Foundation.

News that the virus was spreading internationally had lowered Terry’s personal outlook over just a few days. She described herself as “mildly optimistic” in an interview on Feb. 24.

In all, 61% of the survey respondents were optimistic or very optimistic about the U.S. economy. That was an 11-point improvement compared with the previous quarter, but most survey responses were submitted before the virus gained momentum beyond China’s borders.

“We’re having visitors. They’re happy. It’s usually a very pleasant experience for many folks,” said Terry, whose employer manages Monticello, the mountaintop home and plantation of Thomas Jefferson — the third U.S. president — outside Charlottesville, Va.

“Longer term, of course, if we’re to experience what they’re seeing in China and most recently Italy, and communities are shut down — that could affect us very much.”

In the survey, which closed on Feb. 26, 42% of earlier respondents predicted they would not need to adjust their business forecasts as a result of the virus. But just 25% of those responding the last two days of the month felt the same way. A higher percentage of those responding late either were adjusting forecasts downward or were keeping an eye on how the virus might affect them.

Tony Claas, CPA, the CFO of Olympus Group, said on Feb. 18 that his Milwaukee-based manufacturing company was running into supply chain disruptions from the outbreak.

“Now we’re hearing forecasted delays (for fabrics),” he said. “Globally, there is some effect, but it affects a fairly small part of the business.”

About 33% of respondents were optimistic about the global economy, a slight improvement from the previous quarter — but one that could disappear amid news of shuttered schools in Japan and other spreading effects. Sentiment again was split based on when responses were submitted. The late responders — those who entered survey answers after a Feb. 25 email reminder — were twice as likely to express pessimism about the global economy.

Overall, Claas was “mildly optimistic”, he said on Feb. 18. His company is a small conglomerate that makes mascot costumes and US flags. It also is a marketing agency, but the core of its business is custom printing.

“You’ve got to put your bets in certain businesses,” Claas explained. “Some will fall back, some you put your effort into.”

Claas also had his eyes on interest rates. If rates increase, “you’ll see a lot of businesses start to contract, start to spend less”, which could be especially impactful for a company that relies on discretionary spending. But those higher rates haven’t materialized yet.

In fact, on Tuesday, the Federal Reserve announced that it would lower the federal funds rate by half a percentage point in response to “risks to economic activity” posed by the coronavirus.

Labor costs remained businesses’ top expected inflationary risk factor. Olympus is responding by cross-training employees — for example, seamstresses might switch from digital print projects to sewing custom mascot costumes, he said. The company also has moved to a captive health insurance plan for its 170 full-time-equivalent employees in order to control its costs.

“We’re going to try to ride out that economic cycle,” Claas said. “We do have some opportunities to expand.”

Also on respondents’ minds: this year’s election. Domestic political leadership moved from sixth a quarter ago to fourth on the list of top concerns, behind availability of skilled personnel, domestic economic conditions, and domestic competition.

“In my lifetime, this is probably one of the most controversial elections,” said Lori Maley, CPA, president, CEO, and vice chairman of Bank of Bird-in-Hand in Pennsylvania.

Still, Maley was optimistic, she said on Feb. 19. Bank of Bird-in-Hand was the first new bank formed in the United States after the Great Recession, she said, and it has grown its business with specialty services for the Amish community, including a horse-and-buggy drive-through.

“Right now, we are probably living in the best of times,” she said. “We came out of the belly of the beast [when the bank was founded] in 2013, and we grew from $17 million to $470 million [in assets] in six years. That has to be fueled by the economic growth locally. There’s no other way to explain it.”

Robert Hull, CPA, CGMA, the CFO of Panini America, shared that optimism in an interview on Feb. 18. “We’re not seeing any drop-offs in discretionary spend,” said Hull, whose employer has exclusive licenses to sell trading cards for major sports organizations such as the NFL and the NBA. “This year, we do plan on hiring 5% to 10% more people.”

In the survey, 26% of respondents said they had too few employees and planned to hire. Another 14% were short-staffed but hesitant to expand.

“We’re seeing very healthy and strong demand. What we want to do is reinvest that in the business,” Hull said. But for many of these finance leaders, expectations were shifting by the day as the virus progressed.

Overall, sentiment is positive, according to the nine-segment CPA Outlook Index (CPAOI). The index was at 76, up four points from the previous quarter and the same as the first quarter of 2019. A reading above 50 reflects positive sentiment. Other than the first quarter of 2016, when the index was 63, the first-quarter CPAOI has been at 74 or higher each of the past six years.

About the CPAOI

The CPAOI measures sentiment 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%]).

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the outbreak, visit the JofA’s coronavirus resources page.

— 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

Where to find June’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.