Decline in economic and organizational optimism among CPA leaders

CPA leaders’ optimism about the U.S. economy and their own organizations has trended downward in a quarterly survey since hitting peaks in the second quarter of 2021. While there have been rebounds, recent survey results reveal another decline in optimism for both.

The potential for recession, geopolitical concerns, and uncertainty related to the November presidential election have contributed to optimism about the country’s economy dropping nine points to 26% since last quarter, an overall 17-point drop since the beginning of the year and down 44 points from three years ago, according to the Business and Industry Economic Outlook Survey released Thursday by AICPA & CIMA, together as the Association of International Certified Professional Accountants.

The quarterly survey polled 310 CPA decision-makers in business and industry — CFOs, CEOs, controllers, and other finance decision-makers — on various economic topics from Aug. 6–27.

In past quarters, own-company optimism generally stayed above optimism about the domestic economy. This quarter, the decline in sentiment about the finance executives’ organizations more closely mirrors the decline in economic sentiment. Forty-one percent of leaders are optimistic about their businesses for the coming 12 months, which is down seven points from last quarter and 35 points from early 2021.

Contraction is more likely for 27% of businesses — up from the second quarter’s 20% — and hiring plans changed slightly, too. While 29% of executives believe they need more employees — no change since last quarter — 15% are hesitant to hire and 14% are planning to hire. In 2024’s second quarter, 13% expressed hiring hesitancy and 16% had plans to hire.

Projected profit and revenue numbers also took a hit. For the next 12 months, respondents project profits to rise 0.2%, down from last quarter’s projection of 1.5%. Revenue dropped from a projected growth of 2.9% in the second quarter to 1.5% this quarter.

The November election is having some effect on finance decision-makers’ business planning efforts for the coming year. Forty-six percent report election uncertainty as having a moderate or significant impact on business planning and forecasting, 38% report little impact, and 16% say it is having no impact. Among those reporting moderate or significant impact, the most-cited area (70%) was revenue projection.

Although projected IT spending dropped four-tenths of a percent from the second quarter’s 3.8%, executives are projecting a 3.4% increase in spending looking forward from this quarter. The expected spending rate for other capital increased two-tenths of a percent to 2.4% over last quarter.

The number of overall executives worried about inflation dropped 18 points since the last quarter to 57% — the lowest it’s been since 44% in 2021’s first quarter. Matching this trend, inflation ceded its No. 1 ranking on the list of top challenges to employee and benefit costs.

While the challenges surveyed leaders face are the same since last quarter, concerns and priorities of survey respondents have shifted. Domestic economic conditions  moved up two positions — from No. 5 to No. 3 — and domestic political leadership dropped from No. 4 to No. 6.

Labor costs continue to be the top inflationary risk factor for executives. Forty-three percent believe it represents a significant risk to their organizations — three points lower than last quarter. Interest rates worry 19% of surveyed leaders — a seven-point decline from last quarter.

Regarding interest rates, respondents also were asked about the ramifications of an expected reduction of the federal funds rate by the Federal Reserve. Nearly 70% said the impact of lower rates would be positive, with 50% saying it would be moderately favorable and 19% saying very favorable.

— Jamie Roessner is a senior content writer at AICPA & CIMA. To comment on this article or to suggest an idea for another article, contact Neil Amato at Neil.Amato@aicpa-cima.com.