Inflation drives pessimism and fuels potential challenges

By Beth Roessner

Driven by concerns about inflation, more CPA decision-makers are pessimistic about the state of the U.S. and global economies, according to a new survey.

The quarterly Business and Industry Economic Outlook Survey, released Thursday by AICPA & CIMA, together as the Association of International Certified Professional Accountants, polled CFOs, CEOs, and controllers about the economy, top challenges, and revenue and profit projections. The survey was conducted from Oct. 25 to Nov. 17 and received 551 responses.

Optimism for the U.S. economy dropped six percentage points to 12% — the lowest in the survey since the first quarter of 2009, and down from 41% one year ago. In this quarter's survey, sentiment about the global economy suffered a two-point decline, with only 7% of leaders sharing optimism.

Forty percent of survey respondents said they believe the U.S. economy is currently in a recession, with an additional 51% saying a recession will arrive within the next year. Just 4% don't expect a recession.

In response to a steady increase in borrowing costs over the last year, 45% of business leaders said their companies have increased cash positions in the past 12 months. Forty-eight percent said their companies have responded by being more aggressive in managing their working capital.

Asked about their own organizations, leaders were not optimistic. There was a six-point drop in organization optimism — now at 35%, the lowest since the second quarter of 2020. The main driver of this declining trend appears to be concerns over rising inflation — with 85% of leaders agreeing it's a top challenge. Inflation has been the top concern for the entirety of 2022.

Second to inflation on the list of challenges is employee and benefits costs — moving up two slots since last quarter. Unchanged from the third quarter, and the third top challenge, is the availability of skilled personnel. Domestic economic conditions and concerns over materials, supplies, and equipment costs round out the top five challenges ahead.

Associated costs of inflation could affect organizations in numerous ways, but the most significant risk, according to 41% of leaders, is the potential effect on the cost of labor. Raw materials costs and interest rates continue to be concerns as well.

With inflationary concerns going into 2023, leaders don't anticipate growth in revenue and profit next year. Leaders are projecting a 2.1% increase in revenue in the next 12 months, a slight decrease since last quarter. Projections on profitability also declined. On average, organizations expect profits to drop 0.2%.

One-quarter of respondents said their organizations have increased forecasting frequency compared to what they were doing during the pandemic economy. Roughly another third say they are continuing a stepped-up level of forecasting from that time.

In addition to increased frequency, forecasting has become more complex because of uncertainty related to pricing issues, supply chain reliability, labor costs, and shifting consumer demand.

"We saw record increases in the frequency of forecasting and projections during the pandemic, and that trend is clearly continuing amid uncertainty over inflation, supply chain integrity, and recession risk," said Tom Hood, CPA/CITP, CGMA, AICPA & CIMA's executive vice president–Business Engagement & Growth. "We expect this pace to stay strong as companies work on their cash flow through the next few quarters."

IT expenditures in 2023 are expected to ease from a 3.4% projected increase last quarter to a projected 2.7% increase. Spending on other capital recovered slightly and is now at a 2.1% projected increase. Projected expenditures on training and development eased from a 1.8% increase in the third quarter to 1.5%.

Despite concerns over inflation, hiring remains strong. While expansion plans dropped two points from the third quarter to 47%, more than half of organizations of all sizes continue to need more employees. With no change since the last quarter, 34% of leaders plan to bolster their workforce, while 17% of leaders are hesitant to hire.

Business contraction, in some capacity, is on the horizon for 27% of survey respondents — a two-point increase since last quarter.

Beth Roessner is a senior content writer at AICPA & CIMA, together as the Association of International Certified Professional Accountants. To comment on this article or to suggest an idea for another article, contact Neil Amato at

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