Finance executives in the United States are more confident about their own businesses than about the overall economy. Why is that? And what is the hiring outlook for companies for the next 12 months? Ken Witt, CPA, CGMA, a senior manager for management accounting and member engagement at the AICPA, provides further detail and analysis on the quarterly Business and Industry Economic Outlook Survey, the last before the Nov. 3 presidential election.
What you’ll learn from this episode:
- How finance leaders view the domestic economy and their own businesses.
- Why election season brought about a change to the list of top challenges this quarter.
- The component in the CPA Outlook Index that ranks higher than others by a wide margin.
- The business sectors showing improvement and the ones that continue to struggle.
- How the pandemic may be changing the real estate needs of businesses.
Play the episode below or read the edited transcript:
To comment on this podcast or to suggest an idea for another podcast episode, contact Neil Amato, an FM magazine senior editor, at Neil.Amato@aicpa-cima.com.
Neil Amato: Joined again on the podcast by Ken Witt. Ken, thank you for being here to discuss the latest Business and Industry Economic Outlook Survey.
Ken Witt: Well, thanks for having me, Neil.
Amato: Why are respondents more optimistic about their own businesses than the overall U.S. economy this quarter?
Witt: Well, Neil, as you indicated, what we are seeing in the survey this quarter is a bit of a recovery in optimism about our members’ own companies. After seeing a dip from two-thirds being optimistic in the first quarter to only 30% being optimistic in the second quarter, we’ve gained some ground on this front to now 41% of our respondents are optimistic about their own companies’ prospects. So while we do see a similar swing in their opinions about the U.S. economy since the beginning of doing this survey, what we have seen over time is more confidence in their own companies than in the overall economy. And my guess is that is likely due to a couple of factors.
One, healthy skepticism about the incessant barrage of news about anything having to do with the economy, which also fuels uncertainty. And then on the kind of counterbalancing side, the level of familiarity with their own businesses, which is precisely why we designed the survey this way. Our members are not economists, so while we do ask their opinion about the economy and that certainly shapes their thinking, what we really want to know is what they know best. What’s going on in their own companies? Do they have plans to expand their business, are they hiring, are they investing in business, in their businesses, plans to expand — that sort of thing.
Amato: What’s rebounded more in the past quarter? The stock market or this survey’s optimism about the U.S. economy? [Editor’s note: The podcast episode was recorded on Aug. 28.]
Witt: Well, since the optimism about the U.S. economy has just barely inched up since the second quarter, I think clearly the stock market. While the market has rebounded significantly, the optimism about the economy only recovered from 20% to 24% optimistic from the second to third quarters. Before the pandemic, we were beginning to see some concern about a potential slowing down of the economy. In the fourth quarter’s survey last year, only 50% were optimistic about the economy. Then the pandemic hit, and all bets were off.
What we are seeing now is improvements in some sectors of the economy, including retail, manufacturing, technology especially, while other sectors, in particular, the hospitality, travel and leisure sector continue to suffer mightily.
Amato: Domestic political leadership was a top-three challenge this quarter a year ago when trade concerns weighed on the minds of respondents. This quarter, it was second behind domestic economic conditions on the list of top challenges. So otherwise, political leadership has not been a top-three concern really at any time in the past five years. What does that tell you right now?
Witt: I would say it’s a reflection of what we are seeing in this election-year climate. Our members definitely represent the full political spectrum, and there are many who are concerned about the current political leadership. And there are also many who are concerned about the potential for a change in political leadership. So I think it’s the number of responses from both sides of that equation that has pushed this concern up the list. So we have people on both sides driving this concern higher onto the list of challenges.
Amato: It does make sense when there is uncertainty — and there is plenty of it — that’s going to lead to people on both sides maybe saying it’s a challenge. So it will be interesting to see what happens in the next two months or so. Let’s talk about the hiring outlook. What do CPA decision-makers project for the next 12 months?
Witt: Well, I think here again, we’re seeing some improvement in the second quarter. The overall projection for the coming 12 months is now a 0.0 change in employment. So basically, employment being flat from overall businesses. But while we’re showing some increased optimism in sectors like retail and manufacturing and technology, that improvement and optimism is supported by plans for increased hiring. We are also seeing the other sectors that may take longer to recover, in particular, the hospitality and travel and leisure sector. Based on what I’m reading, the major airlines are talking about layoffs, and we’re likely to see some layoffs in that sector and probably some of the related sectors in travel and leisure industry.
Amato: In the CPA Outlook Index, which is a nine-sector measure of sentiment, one component is higher than the others: IT spending, at 71 on a scale of zero to 100. No other component is even in the 60s. What does that mean about what companies are investing in?
Witt: Well, I think technology spend has been sort of the leader of the pack in terms of spending for some time now as so many companies are in the process of pretty just widespread digital transformation that’s sort of just across industry sectors. And while I think a lot of companies are just trying to put the brakes on any spending that they could initially, they’re now starting to look at what they need to do to go forward. One of the things that we've heard from our members is that the pandemic has given some the push to take on some of these technology projects or upgrades that were in the works or on the back burner and push them forward now to increase their capacity and capability in this arena.
Amato: That’s a good point about the pandemic kind of pushing some technology. Seventy-seven percent of respondents, so more than three quarters, said they plan no change to their current office space needs. Most of the ones who are reducing space are doing so to transition to a more virtual environment, I guess. Is there any indication that this is a trend that might continue as organizations have leases and other things come up for renewal?
Witt: Yeah, I think this is the definitely likely to be the case. While we didn’t ask the question directly, we did have a couple of write-in responses that indicated they could not reduce their footprint because of lease terms. So that’s a constraint on many, I would argue. But I would say as we become more accustomed to having people work at home, especially in functions that might have felt they needed to be in an office like finance, for example. Companies will be likely to reduce their footprint, and people will kind of, especially around urban areas, I think, people that have become accustomed to working from home while they had long commutes both ends of the day will be inclined to stay at home, and companies will take advantage and reduce their footprints as well.
Amato: Ken, thank you, the next survey release is in December. Looking ahead to that, anything to say in closing?
Witt: No, I think it’ll be interesting to see what we have with the fourth-quarter survey. It's always sort of interesting in the fourth quarter to look ahead into the subsequent year. And I think, especially in an election year, we’ll have some interesting findings as we go to the field directly after the election.
Amato: Thank you very much, Ken.