Dec 16th 2011
By Anne Rosivach
Business leaders remain pessimistic about growth in the US economy in the next three months, according to the American Institute of Certified Public Accountants (AICPA) fourth quarter AICPA Business and Industry Economic Outlook Survey. The survey was conducted November 9–28, 2011, and included 916 qualified responses from CPAs who hold leadership positions, such as CFOs or controllers, in their companies. Participants in the survey responded to questions based on the CPA Outlook Index (CPAOI). The overall margin of error was less than plus-or-minus 3 percentage points.
Looking Ahead to 2012: Progress or Paralysis?
The AICPA Business and Industry Economic Outlook Survey findings were the subject of a recent Webcast sponsored by the AICPA, Looking Ahead to 2012: Progress or Paralysis? Panelists, who included two CPA executives and a nationally recognized economist, were asked to interpret the survey's conclusions and state their own views about what would influence CPAs' plans for spending, hiring, and expansion in the months ahead. They also were asked what business strategy a CPA might consider in an uncertain political and economic environment. Survey results were based on nearly 1,000 qualified responses.
Webcast panelists expressed a range of views in a spirited discussion and invited comments on current political as well as economic issues. They did not hesitate to challenge each other and, in some cases, the conclusions of the survey. The Webcast will be archived and available at a later date.
Nine Survey Components
The CPAOI is a broad-based composite index of nine measures:
- US Economy Optimism
- Organization Optimism
- Business Expansion
- IT Spending
- Other Capital Spending
- Training and Development
Survey Findings and Panelist Discussion
Some respondents identified themselves as pessimists about where the US economy is headed, although the percentage of pessimists dropped this quarter, from 59 percent to 40 percent. The percentage of CPA executives who identified themselves as optimistic or very optimistic more than doubled this quarter, from 9 percent to 19 percent.
Despite the pessimism, all nine components of the index showed modest improvement in the fourth quarter. The largest contributor to an increase in optimism was the outlook for the US economy, which recovered 15 of the 28 points lost in the third quarter. Stan Collender, Partner, Qorvis Communications, said that the small improvement in every component was an indication that the economy was recovering, but it was not a robust recovery.
The CPAs surveyed predicted a 2.8 percent increase in revenue, a 2.4 percent increase in profits, and a 1.2 percent increase in staffing in 2012. The largest companies were planning the most expansion. Collender pointed out that a positive comparison with third-quarter survey results could be misleading, because the third-quarter survey was conducted during the debt ceiling debate and results may have been low for that reason.
James E. Glassman, Managing Director and Senior Economist, JPMorgan Chase & Co., who found signs of improvement in the US economy, said "the lights were on in manufacturing" and "there are signs of life in homebuilding." Looking at the numbers as an economist, he said that business profit margins were very high, and those profit margins were an incentive for thinking about future capital spending. Glassman said that Europe remains a big challenge, but he repeated that fundamentals were strong in private US companies, and that the recovery would be driven by the private sector.
The technology sector reported the greatest optimism. However, Chris Rogers, CPA, Chief Financial Officer, Infragistics, Inc., a tech company, said that it is guarded optimism. That is because of increased labor costs in high-tech industries, where the competition for qualified employees worldwide is intense.
Although 25 percent of CPAs responded that they need to hire, they said they were hesitant to do so. Only 10 percent said they had plans to hire in the near term. There had been some improvement in employment levels, with 9 percent saying they had returned to prerecession levels, up from 2 percent in the first quarter of 2010.
Stuart Benton, CPA, Executive Vice President and Chief Financial Officer, Bradford Soap Works, said higher prices for commodities were the biggest concern for his company. He said Bradford Soap Works had succeeded, even with price increases for commodities, by following a continuous improvement process.
Only 19 percent of CPA executives said that they needed capital, down from 26 percent a year ago. Benton said that businesses could see their liquidity position improving even more, which could stimulate a change in plans for expansion. He said he was not finding as much difficulty in gaining financing.
The survey showed that plans for spending on IT, other capital expenditures, and training were at the highest level since the third quarter of 2007. Other capital expenditures and spending for training and staff development were also expected to increase by 2.2 percent and 1.2 percent respectively. Spending plans for research and development were down slightly.
Top Ten Challenges in Fourth Quarter
In the fourth quarter, a new list of potential challenges was introduced “to add granularity and represent a more global view." Following are the top ten:
- Domestic Economic Conditions
- Regulatory Requirements/Changes
- Employee and Benefits Costs
- Stagnant/Declining Markets
- Domestic Competition
- Domestic Political Leadership
- Materials/Supplies/Equipment Costs
- Developing New Products/Services/Markets
- Global Economic Conditions
- Availability of Skilled Personnel
Fourth Quarter Survey-within-the-Survey
This quarter’s survey-within-the-survey, "Debt Ceiling/Deficit Reduction and Reduced Spending Impacts," focused on uncertainty and government policy. Responses indicated that while CPA respondents said reducing the deficit would have the most impact on reducing uncertainty, they were divided on how the deficit should be reduced.
The clear top choice for the source of uncertainty was US economic conditions (43 percent), followed by regulatory policy uncertainty (15 percent), White House leadership (11 percent), congressional stalemates (9 percent), and global economic conditions (8 percent).
Rogers provided some perspective on regulation, saying that it is easier to start a company in the United States than anywhere else. Europe and Australia have similar regimes, but what takes two days in the United States can take months elsewhere.
Panelists' Summary Comments
Panelists spoke with unusual candor when asked by John F. Hudson, CPA, President, Hudson Consulting Group, LLC, the discussion moderator, to sum up their personal views about the economic outlook for the next quarter. Glassman said there would be "no silver bullet"; a return to full employment was still years off. Recovery would come from "a little bit of this and a little bit of that." He said that he did not think that economic problems in the United States were structural. He called them cyclical, pointing to the recovery in the auto industry. "The economy is recovering, but life could be easier if Washington were unified,” he said.
At that point, Collender asked Glassman and other panel members: "How do you communicate to Americans that the recovery could take years?" He commented that economic cycles and political cycles were out of sync. "A ten-year economic cycle is two-and-a-half presidential elections. Unemployed people are angry and they vote," Collender added. He said that no one should expect anything out of Washington in an election year, with the most partisan atmosphere he had experienced in Washington in thirty-five years.
Rogers summed up by saying, "It is not as bad as it may have felt, and it is not as good as we would like it to be."
Benton said that executives should ask themselves, "How do I grow with what I have?" He added, "Planning is essential. Make a plan, work the plan, keep a cash budget."