Why the outlook of CPA decision-makers has improved

It’s not a rosy outlook by any means, but the mood of finance decision-makers has brightened in the past three months. That’s according to a third-quarter survey of CPA decision-makers in business and industry. Optimism is rising, along with projections on revenue for the coming 12 months. Also, inflation is no longer the top challenge chosen by respondents.

Ken Witt, CPA, CGMA, AICPA & CIMA’s associate technical director – Research and Development, discusses the results of the Business and Industry Economic Outlook Survey in this podcast episode.

What you’ll learn from this episode:

• The decline in the percentage of respondents expecting their businesses to contract.
• A breakdown of how CPA decision-makers in business and industry feel about the likelihood of a recession.
• The top challenges facing finance executives.
• What Witt calls the “keynote stat” to monitor leading up to the fourth-quarter survey results.

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@aicpa-cima.com.

Transcript

Neil Amato: Welcome to the Journal of Accountancy podcast. I’m Neil Amato with the JofA. This early September episode is focusing on the quarterly Business and Industry Economic Outlook Survey.

I’m joined once again by Ken Witt, AICPA & CIMA associate technical director – Research and Development. Ken and I are going to discuss, as I said in the intro, the quarterly Business and Industry Economic Outlook Survey. Now Ken, we’re going to get to the survey overview in just a bit, but I have to go ask about one particular aspect of the survey that is interesting to me: Inflation is no longer listed as the top challenge among CPA decision-makers. It’s been seven quarters in a row that it has, and now it’s not. What are we to make of that change?

Ken Witt: Yeah, thanks, Neil, for having me again. As you said, inflation has been the big concern going back to the fourth quarter of 2021, and this quarter we saw it eased off a slot. It’s being replaced by the availability of skilled personnel as the top-ranked challenge, which has been a long-standing challenge for all of our businesses. As you recall, we also ask a specific question about inflation — the level of concern and which are executives more concerned about — and we also saw a little bit of easing in that. Last quarter, we were seeing 78% of our executives being more concerned about inflation than deflation, of course, and that has eased off to 67%.

Amato: So now we’ve touched on the specifics; now we’re going to go back to the overview. In your mind, what would you say are the high-level takeaways of this quarter’s data?

Witt: Well, what we saw last quarter was a sort of doom and gloom. We saw a little bit of recovery in the first quarter, and then last quarter, we gave up everything that we had gained in the first quarter. It was pretty grim. We only had 14% of our execs in the second quarter who were optimistic about the U.S. economy. Actually 56% of them were pessimistic. Nearly 46% told us they had plans to contract their business rather than expand. Fortunately, we are seeing a little uptick in those numbers. We still only have 29% of our respondents saying they’re optimistic about the economy, but our members are always less optimistic about the economy than they are about their own businesses.

Fortunately, we are seeing that 45% say they’ve now got some optimism about their own organizations, up from only 35% last quarter. We now have 50% of our businesses saying they have plans to expand and only 24% saying they’re going to contract. We’re looking like we’re a little bit more on stable footing going forward, so we’ll see where it goes in the subsequent quarters.

Amato: Yeah, so it’s definitely not a rosy outlook, but it’s far less, as you said, doom and gloom. One aspect of that is a stat you touched on, which is contraction of business. Last quarter it was nearly 50% who expected some contraction of their business, but that number has dropped, what, almost in half this quarter?

Witt: Yeah, I think. What’s the number? Only 24% say they have plans to contract. That’s eased up quite a bit.

Amato: That was, what, down from 46% in the second quarter?

Witt: Yes, 46% last quarter said they had plans for contraction rather than expanding their business. It’s pretty significant improvement. It’s one thing to hold your own ground and maintain your business as opposed to investing in growth and expansion. But when you have only a quarter of them saying they’re contracting their business versus nearly half last quarter, that’s a significant improvement, I’d say.

Amato: Let’s talk also about how they feel about the possibility of a recession. The question has been asked several times, not every single quarter, but recently it’s been asked about where things stand with regards to recession.

Witt: That is a question that we have asked periodically, and going back to Q4, like I said, that was what we thought was the bottom. We had 40% say that we were already in a recession, another 51% projected a recession at some point prior to the end of 2023. We only had 4% of our respondents in the fourth quarter of 2022 say they did not expect a recession. We thought we’re at the bottom in Q4, and then we hit Q2. Seventy-eight percent said we’re already in a recession, or would be by the end of 2023, and only 13% said they did not expect a recession.

So this quarter, we’re seeing some pretty significant improvement in those numbers. We have only 17% who say that we’re already in a recession and 16% expecting a recession by the end of 2023. We’ve still got 27% expecting a recession by the end of ’24, but we have 26% who say we’ll dodge that bullet and they don’t expect to see a recession. We’re getting a pretty significant number looking for that soft landing that we’ve been hoping for.

Amato: What’s the hiring picture look like? It seems like about half the number of companies have about the right number of employees, but where do the rest of the organizations stand on that front?

Witt: As I indicated before, the availability of skilled personnel tops the challenge list this quarter, so the need for skilled personnel is an ongoing problem. Thirty-nine percent say they have too few employees, and with the easing of concern about the economy, we only have 14% who are hesitating to hire. Twenty-five percent say they’re going on with their hiring plans. Hopefully, you’ll be able to have some success and ease that concern about the availability of skilled personnel.

Amato: We’ve kind of breezed through the highlights of the survey so far. What else would you say is important about this quarter’s survey data?

Witt: Well, I think we were really trying to do a little bit of more of a drill-down into what we might expect in terms of inflation. We asked about the expectations for pricing. We also asked about supply chain expectations.

It looks like we can continue to see some price increases, as 37% of our respondents say they have plans to increase their pricing. That’s up from only 27% when we asked the question in the second quarter of 2022. Fifty-one percent said they plan to hold the line on pricing, and only 4% said they would decrease prices. We’ve got some ongoing inflation built into those projections.

On a little more positive note, we’ve tried to drill down into supply-chain expectations as well. Thirty-five percent of our executives said that they are already seeing an easing of supply-chain issues in terms of pricing and availability in their business. Another 20% expect to see some easing in 2024, but we still have nearly a quarter, 24%, say they expect supply-chain challenges to continue through 2024 in their business.

Amato: Is there anything in particular, I guess as a closing thought, that you might look at closely in the fourth-quarter results that will come out in early December?

Witt: Since we’ve had a little bit of easing of concern about inflation but some continued price increases being forecast by our members, I think that’s the keynote stat to continue to monitor — whether we continue to see some easing in inflation, or whether it’s going to continue to persist in our economy.

Amato: Ken Witt. Those are the third-quarter results. We’ll look forward to talking again in the fourth quarter. Thanks for being on the podcast.

Witt: Thank you, Neil.