COVID-19 resurgence, tight labor market lead to drop in optimism

By Andrew Kenney

Finance professionals remain optimistic overall about their businesses’ economic prospects, but that optimism is tempered by the spread of the COVID-19 delta variant and other concerns in the third quarter. A new AICPA survey of finance decision-makers, including CEOs, CFOs, and controllers, shows that 51% of respondents are optimistic about the U.S. economy’s upcoming year, a drop from 70% who were optimistic in the second quarter.

The AICPA Business and Industry Economic Outlook Survey’s CPA Outlook Index (CPAOI) fell to 75 out of 100, down slightly from 78 in the second quarter but still much higher than the 54 mark from the third quarter of 2020. CPAs’ optimism about their own companies stood at 65%, a drop of 11 percentage points from last quarter.

In interviews, finance leaders said that demand and revenues were growing, but a tight labor market, inflation, and a resurgent pandemic have clouded the future.

“I’m optimistic about it, based on both the business that we’ve signed up and our sales pipeline. It looks very strong across multiple industries,” said Erin Riley, CPA, the CFO of Industrial Access, a contractor in Cummings, Ga., that specializes in maintenance and repair of industrial facilities.

“But the cautious part of me, the natural skeptic that comes with being a finance person, is waiting for the hammer to drop, especially with COVID.”

Demand grows, but labor is tight

During the pandemic, Industrial Access saw jobs delayed or canceled as factories went into COVID-19 lockdowns. The company has carved out niches such as maintaining and repairing large smokestacks.

Now, those jobs are underway once again. Clients “seem to have opened the floodgates and they are full-bore,” Riley said. But that brings a new problem: hiring. The company currently employs about 65 people and could easily add another 25.

It has always been difficult to recruit workers who can climb thousand-foot smokestacks, a job that requires intensive training and certifications. But the company is now struggling to find workers for its entry-level jobs.

“We’ve seen a large uptick in people scheduling interviews and then never showing up,” Riley said. “And then we also are competing for people who can work in multiple industries.”

In response, the company is hiring its first full-time recruiter. Its representatives are looking for talent at local military complexes, and the company began compensation analyses to compare its wages to others in the industry.

Riley expected the company’s new recruiter to try more innovative approaches, perhaps including social media posts of the hair-raising work that its crews perform while roped onto towering buildings.

The company is a common story among the survey’s respondents. On average, they ranked the availability of skilled personnel as their biggest challenge. The majority reported some degree of difficulty in recruiting and retaining staff, with 22% describing “extreme” difficulty. Recruiting was the most common concern, but about a third of respondents said they struggled equally with recruiting and retention.

In San Antonio, Jenifer Larson, CPA, CGMA, had struggled for five months to fill two open positions at SaniSafe Products, the plastics manufacturer where she is controller.

“Retention has been no problem. Hiring is a headache,” Larson said. “I have called over 80 people that have applied for my [posted] job through the Texas Workforce Commission — and I have had one person actually show up for an interview.”

She previously theorized that people were reluctant to work because they were receiving unemployment benefits. But she’s reconsidering that idea. Larson did not notice any change in the labor market after Texas Gov. Greg Abbott ordered an end to federal unemployment benefits in Texas, such as the $300-a-week enhanced payment and the Pandemic Unemployment Assistance program, late in June.

“Now, I don’t understand why I can’t get anybody. The only thing that I can think is that everybody raised their starting salaries,” Larson said. SaniSafe Products has raised its minimum salary to $11 an hour, with a raise to $12 an hour after 90 days. The company also has considered hiring and referral bonuses, she said.

A majority of survey respondents, 54%, said they needed more employees. Rising labor costs were the top inflationary concern among respondents. Forty percent say they don’t have enough workers and plan to hire, and 14% say they don’t have enough workers but are hesitant to hire. About 64% were paying higher wages to attract and retain talent, while about 46% were offering more flexible work arrangements.

SaniSafe Products hasn’t embraced some of those changes yet. “Because we’re not hurting that bad yet, we’re just going to keep doing what we’re doing,” Larson said. But they may need more staff soon.

The company saw a boost in business through the pandemic as it sold custom polycarbonate barriers, meant to reduce the spread of COVID-19, for grocery stores. Now, some of those stores are investing in more permanent barriers, and they are purchasing other plastic products that they had deferred during the pandemic.

Economic ‘crosscurrents’ ahead

Overall, the economy is being buffeted by “crosscurrents,” according to Tom Stringfellow, CPA, the chief investment strategist for Argent Trust’s national investment team. Everything from COVID-19’s continuing impact to the U.S. withdrawal from Afghanistan has had an impact on markets recently.

“There’s just all these news events that are causing people to get whiplash,” he said. “I think over time you’re going to see more positive [economic developments], but we’re going to get caught in the crosscurrents of news stories.”

The virus wasn’t the only source of uncertainty. The vast majority of survey respondents, about 77%, cited inflation as a concern. Combined with supply shortages, it’s hampering some organizations’ ability to take advantage of the recovery.

For example, take the village of Montgomery, Ill.

The municipality outside Chicago depends on sales taxes for a large part of its budget. After a flat 2020, those revenues have seen dramatic growth — about 18% — in 2021, according to Director of Finance Justin VanVooren, CPA. That increase came from the reopening of restaurants and stores, as well as from out-of-state online sales, from which the municipality recently gained the ability to collect taxes.

The problem, VanVooren said, is that rising costs are eating up those gains. In June, the village took out bonds to fund a new public works building.

“We got an extremely good rate on the bonds and ended up getting a premium on those bonds … but then we went to do the first bid for structural steel and precast concrete,” he explained. With bids coming in $600,000 over budget for just those two items, the project’s future was unclear.

Material shortages also were affecting SaniSafe Products. The company once relied on just two suppliers but now buys from about 10 companies, Larson said. And negotiations are now more difficult.

“They will quote us a price that will be good for three days,” Larson said. “They’ve never given us time limits before.”

The company has tried to keep its costs low by negotiating bulk purchase orders, she said.

In Georgia, Industrial Access also has seen increased costs for supplies such as specialized paint, but the company has been able to pass those costs on to its industrial clients, Riley said.

In Illinois, VanVooren worried that continued inflation could start to affect his organization’s fundamentals.

“If inflation continues, I worry that it’s going to start affecting more things across the board,” he said. “Basically, there’s going to be less money to spend. People spend less money, we get less sales tax.”

Stringfellow expected prices would begin to settle down as supply chains are mended, pointing to the break in lumber prices as an example.

“Looking for 2% inflation over the next couple years is not realistic,” Stringfellow said. “But I don’t think it’s 5%. I don’t think it’s 4%.” A rate of inflation around 2.5% could be realistic and sustainable, he said.

Uncharted territory

The California Chamber of Commerce had hoped to bring its full staff of about 100 back to the office for two days per week starting in September. The organization’s busiest season begins in October as it prepares for the implementation of new labor and business laws.

But the not-for-profit is reconsidering that office reopening plan and will decide soon, said Larry Dicke, CPA (inactive), CalChamber’s executive vice president and CFO.

“It is a little unsettling for us. We had a plan. But we’ll get through it,” Dicke said. “Eventually, we need to develop a new plan and get people back in the office. We have three floors we’re paying rent on that are basically occupied 5%, 10%.”

With questions looming about small businesses, tourism, and travel, Dicke said that he had tempered his expectations for the year ahead.

“It has changed. I’m a little bit more pessimistic,” he said. CalChamber’s budget leaves the option to “turn the faucet on” for marketing and sales, but for now the organization is taking “a very conservative approach.”

It seems that the pandemic will be only one of many dramatic changes in the years ahead, he said. With enormous wildfires clouding the West, Dicke said that the state seemed to be entering uncharted territory.

“I have rules of thumb on how this business works — I threw those out the window,” he said. “They don’t work anymore. I need new rules of thumb, and they haven’t been defined yet.”

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

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