The reasons for positive economic sentiment — and why that could change

Hosted by Neil Amato

CPA decision-makers in business and industry in the United States maintained an overall positive outlook for their organizations, but plenty of factors could sour that sentiment quickly.

Hear or read the analysis of Bob Sannerud, CPA, CGMA, a CFO in the Midwest, and Ken Witt, CPA, CGMA, an associate director from the Association of International Certified Professional Accountants, representing AICPA & CIMA. They discuss the reasons for optimism and pessimism in the Business and Industry Economic Outlook Survey and some of the challenges facing business in the year ahead.

Also, hear summaries of recent news:

What you'll learn from this episode:

  • An overview of sentiment in the first-quarter survey.
  • The top challenge facing finance executives who responded to the survey.
  • The "interesting shift" Witt noticed regarding business expansion plans.
  • Why revenue projections the past three quarters have remained relatively steady while profit expectations have declined.

Play the episode below or read the edited transcript:

To comment on this episode or to suggest an idea for another episode, contact Neil Amato at


Neil Amato: In general, CPA decision-makers remain positive about their own business prospects for the coming year. There's pent-up consumer demand and growth opportunities — but the finance leaders also see obstacles. The latest on economic sentiment is coming up after this word from our sponsor.

[Ramp sponsor message]

Amato: This is Neil Amato with the Journal of Accountancy. This episode focuses on the quarterly Business and Industry Economic Outlook survey. Before we get to our main interview, I'm going to play a clip from one finance leader, who is quoted in the JofA's survey article. This is Bob Sannerud, a CPA who holds the CGMA designation and is the CFO of Life Link III, an air ambulance service. This offers a sense of current optimism and how that could change as the year progresses.

Bob Sannerud: Given the headwinds that we're seeing and granted, some of them, we're still pretty early on in some of it, but I'd say right now we're still optimistic. But as these events evolve, if inflation doesn't subside, if interest rates continue their upward march, if Ukraine expands beyond where it is and where that goes, I can see that becoming neutral to slightly pessimistic by the end of the year.

Amato: Again that was CPA Bob Sannerud in Minnesota. For more analysis on sentiment of finance decision-makers, we have our in-house expert on the survey, Ken Witt. Ken is a CPA who holds the CGMA designation, and he is associate technical director for management accounting research and development. Here's that interview with Ken.

Ken, the Economic Outlook Survey results were released today. But we want to mention first that respondents did not have full knowledge of the situation in Ukraine when they completed the survey. Can you explain some of the particulars on that?

Ken Witt: Yeah, sure. I think that is an important note. The survey closed on Feb. 23, and the Ukraine invasion happed on Feb. 24. While we may have some concern reflected in the results or the anticipation of what was building up, we don't have the full reflection of the actual invasion in this quarter's survey results.

Amato: The results in general are still positive. There are some headwinds, which we will discuss. The people I found on the OK-to-contact list for a deeper look at their sentiment really said the same thing. They're positive, they think it's going to be a good year, but they have their eye on inflation in particular. Would you say that's an accurate sentiment when you look at these numbers?

Witt: Yeah, I think that really is the case. Last quarter, our survey results were all about inflation. It topped the list of challenges for the first time in the fourth quarter, and that was supported by other cost increases, especially employment costs, and concern about interest rates were also part of that mix.

What we're seeing is the first quarter is a continuation of that story. There's the continued pandemic concern with the Omicron outbreak. We've still got concern about inflation, interest rates, employment, supply chain challenges, which topped the list. Then, on the optimistic side, they're hoping to see a little light at the end of the pandemic tunnel. They're seeing continued strong demand in the economy, and people have available resources to spend on their products. What we're seeing in terms of the outlook is that optimism about the U.S. economy overall continued to slide. It dropped down from 41% last quarter to 36% optimistic about the economy overall.

But we've often seen this. There's a little more stamina with respect to organization optimism than there is about the optimism about the economy overall. And organization optimism remained constant, with 58% continuing to be optimistic about their own company. And we're still seeing nearly two-thirds, 62%, having plans for expansion.

So, one of the things we're seeing in terms of expansion plans is that there's been an interesting shift in terms of big companies, which had been leading the pack in terms of expansion plans, while smaller companies were lagging a bit behind. This quarter, what we're seeing is the small companies, those with less than $10 million in revenues, the number of those with expansion plans increased from 52% to 62%. On the flip side, large companies — those with $1 billion in revenues — have sort of tempered their enthusiasm a bit, with 73% having expansion plans to now only 60%. Still strong overall, good strong numbers, but just a little evening out, I think, with respect to what's been going on with the pandemic over several quarters now.

Amato: When you look at the revenue projections for the next 12 months versus the profit projections for the next 12 months, revenue is staying relatively flat, at the mid-4% range, 4.3%, 4.5%, while profit has been going down, and has been for the past three quarters. What's the reason for the difference there?

Witt: Well, I think like I mentioned, our respondents say they continue to be relatively optimistic about their own operations. They're hoping to see a little light at the end of the pandemic tunnel, and they're seeing strong demand for their products and services, but overall inflation is sort of taking its toll.

Employment costs in particular, and other costs of goods and services — the supply chain has been disrupted for many of our companies. The cost of things, and importing things, and getting them into their products and services, their value stream has been particularly challenging. That's sort of putting the squeeze on their profits, and that's been going on since we saw the more pure increase of revenue and profits early and mid last year.

Amato: Ken, thank you very much.

Witt: You are quite welcome, Neil.

Amato: In other news, the AICPA & CIMA have issued a statement about Ukraine. It reads:

"The Association of International Certified Professional Accountants, the combined voice of the American Institute of CPAs and the Chartered Institute of Management Accountants, wholeheartedly stands with the people of Ukraine and supports governments in implementing economic and trade sanctions and other measures taken in response to the Russian military invasion.

Representing our 696,000 members, students, and engaged accounting and finance professionals from 192 territories and countries around the world, we strongly condemn the actions taken by the Russian government. We are saddened by the appalling impact this is having on people's lives and have put in place measures to support our members, students, and staff directly impacted. 

We will continue to monitor the situation and provide updates."

Also in JofA news, new tools offered by the AICPA's GAQC, or Governmental Audit Quality Center, discuss Provider Relief Fund audit requirements for for-profit health care entities as well as single audit tips for auditors and organizations subject to single audit requirements.

And PPP loan forgiveness in some cases was too slow, according to a report by the Office of the Inspector General. Ken Tysiac is covering the news of that report, which found that the U.S. Small Business Administration did not meet the 90-day statutory requirement to remit Paycheck Protection Program forgiveness payments to lenders for loans totaling $66.4 billion.

We will link to the articles mentioned in the show notes for this episode. This is your host, Neil Amato. Thank you for listening to the Journal of Accountancy podcast.