By Jason Bramwell
Despite optimism in the US economy dropping 4 percentage points in the third quarter of 2013, business executives continue to raise their expectations for hiring in the coming year, as the number of companies that plan to add new employees increased by 3 percent over the first and second quarters of this year, according to a new economic forecast released September 10 by the American Institute of CPAs (AICPA)
The CPA Outlook Index – a comprehensive gauge of executive sentiment within the survey – remains unchanged from last quarter at sixty-nine points. The index is a composite of nine, equally weighted survey measures set on a scale of zero to one hundred, with fifty considered neutral and greater numbers signifying positive sentiment.
Most elements of the index rose modestly or were unchanged. US economic optimism fell four points, in part due to concerns about health care reform and political gridlock. Organization optimism – how executives feel about their own companies – slid a single point after a steady increase in each of the previous three quarters. However, each of these components is higher now than a year ago, with US economic optimism up twenty-one points year over year, despite this quarter's dip.
Index components that showed the highest quarter-to-quarter increase were employment, expansion plans, and revenue – each up two points over the second quarter.
"To me, it indicates that business executives are still a little wary about the US economy's ability to jump forward, but more executives now believe there is enough stability to start expanding and hiring again," Jim Morrison, CPA, CGMA, chair of the AICPA Business & Industry Executive Committee, told AccountingWEB.
The number of companies with too few employees who plan to hire increased from 12 percent in the first and second quarters to 15 percent in the third quarter – a post-recession high for this measure, according to the AICPA.
"An increase to 15 percent from 9 percent a year ago and from 12 percent three months ago is pretty significant," Morrison said. "It shows that executives are now willing to go out on a limb and commit to some hiring, which is good news."
Slightly more than half of all companies (53 percent) continue to say they have the right number of employees, and only 11 percent report they have too many. The number of companies that say they have too few employees but are hesitating to hire remained at 19 percent.
Despite a decline in overall optimism this quarter, improvement in the rate of hiring is expected by the technology (2.1 percent to 2.6 percent) and professional services (1.6 percent to 1.9 percent) industries. The construction industry expects to continue at the same hiring rate of 2.1 percent.
In spite of the retail trade segment leading in terms of consumer spending optimism (62 percent), its expected rate of hiring declined from 2.1 percent in the second quarter to 1.8 percent in the third quarter.
On the flipside, a full percentage-point improvement in hiring rates is expected by both wholesale trade (0.5 percent to 1.5 percent) and the real estate and property (0.6 percent to 1.6 percent) segments. The finance and insurance sector expects to continue expanding headcount at a 1.2 percent rate, while manufacturing is expecting to ease off slightly from 1.2 percent to 1 percent. Both health care providers and health care-other companies expect hiring to be in the 0.5 percent range.
Morrison said one factor that might be driving an increase in hiring for the third quarter is the improved outlook for organizations' growth and expansion.
"It results in the need for more headcounts," he added.
Sixty-eight percent of companies with $1 billion or more in annual revenues have plans to expand in the third quarter of this year, followed by 64 percent of companies with revenues of between $100 million and $1 billion, 61 percent of companies with revenues between $10 million and $100 million, and 56 percent of companies with under $10 million in annual revenues.
While there continue to be more billion-dollar companies that are reluctant to hire (24 percent) than companies in the other categories, those businesses also have plans to hire (19 percent in the third quarter versus 15 percent in the second quarter). Companies with revenues under $10 million are also more inclined to hire than they have been, as shown by an increase from 9 percent in the second quarter to 16 percent in the third quarter. The businesses in that category that are reluctant to hire dropped from 25 percent last quarter to 20 percent this quarter.
"We have seen expectations on hiring and business expansion gain steadily throughout the year," Arleen Thomas, CPA, CGMA, senior vice president of management accounting and global markets for the AICPA, said in a written statement. "Our latest survey results support that, but also show some renewed concern about prospects for the US economy."
Drop in Economic Optimism
After rising to the highest post-recession level in the second quarter of this year, the percentage of survey respondents who are optimistic about the US economy fell in the third quarter from 49 percent to 44 percent. However, this lack of economic optimism translated to only a 2 percent decline – 57 percent to 55 percent – in CPAs who are optimistic about the prospects for their own organization.
Those who continue to be optimistic about the economy cite improvements in housing and construction and consumer spending as the most significant factors influencing their decision, followed by employment optimism. Those with a neutral or pessimistic view of the economy cited the challenges of health care reform and the Affordable Care Act as well as political leadership as the most significant factors.
Top Three Challenges Remain the Same
The top three obstacles facing business executives in the third quarter were the same obstacles they faced during the second quarter. Those include:
1. Regulatory requirements/changes
2. Domestic economic conditions
3. Employee and benefit costs
"I think a lot of those concerns are being driven by the unknown of the new health care legislation, and those challenges are the things that kind of temper hiring a bit," Morrison concluded. "But even though those concerns are out there, what is a little surprising – in a positive way – is the uptick in the hiring outlook."
About the survey:
The AICPA Business & Industry US Economic Outlook Survey 3Q 2013 was conducted between August 13 and 29 and included 1,228 qualified responses from CPAs who hold executive and senior management accounting roles. CFOs comprised 46 percent of the respondents, 23 percent were controllers, 11 percent were CEOs or presidents, 10 percent were vice presidents, 2 percent were COOs, and the remainder were directors or other executives.
Sixty-eight percent of respondents came from privately owned entities, 16 percent from publicly listed companies, 12 percent from not-for-profits, 1 percent from government, and 1 percent from other.
Eleven percent came from organizations with annual revenues of $1 billion or more, 21 percent from organizations with $100 million to under $1 billion in annual revenues, 45 percent from organizations with $10 million to $100 million in annual revenues, and 21 percent from organizations with under $10 million in revenues. (Numbers may add to more than 100 due to rounding.)
The overall margin of error is less than +/- 3 percentage points.