CPA executives remain optimistic about the U.S. economy, according to the latest quarterly economic outlook survey from the American Institute of CPAs (AICPA).
The poll for the first quarter showed a post-recession high of 79 percent among respondents who expressed optimism, citing the general strength of many economic indicators along with corporate tax cuts and deregulation. Most respondents (71 percent) also were upbeat about the outlook for their own organizations.
The CPA Outlook Index (CPAOI) — a measure of the strength of U.S. business activity and economic direction that reflects the views of CPAs who are AICPA members in Business & Industry holding executive positions in both public and privately-owned organizations of all sizes, and across a broad spectrum of industries — climbed to a record 81, from 79 in the fourth quarter of 2017.
But it’s not all good news. About half (49 percent) of respondents indicated that inflation is a bigger risk than deflation for the next six months. Respondents cited labor costs, raw material costs and interest rate hikes as the major inflation fear factors. In fact, inflation concerns are almost double what they were in the third quarter (27 percent). An AICPA statement indicates that inflation concerns haven’t exceeded 38 percent since 2013.
“Business executives are drawing a lot of confidence from current economic indicators, and cite federal tax reform and deregulation as two factors in their improved outlook over the next year,” said Arleen R. Thomas, CPA, CGMA, managing director of Americas Market, Global Offerings & CGMA Exam, Management Accounting for the Association of International Certified Professional Accountants, in a prepared statement. “At the same time, we’re seeing an uptick in concerns often associated with a hot economy, from talent pool issues to rising inflation fears.”
Indeed, only about half of the respondents said their companies have the proper number of employees. For the third consecutive quarter, respondents noted that the availability of skilled workers remains their top business challenge. Interestingly, 74 percent of respondents said they hadn’t passed on tax savings as pay increases or benefit changes to employees.
With regards to the new tax law, when asked about the expected impact of changes to corporate taxes, half of the respondents, excluding those from our not-for-profit sector, expect to see an increase in their earnings, according to the AICPA.
Other key findings include the following:
- Half of the respondents – excluding those from non-profits – expect a positive effect on earnings as a result of the recent tax reform. Let’s parse that a bit: The numbers range from those respondents who expect a 1 to 3 percent impact to those expecting more than a 20 percent impact on earnings. But the largest segment of 17 percent only expects a 5 to 10 percent increase. Collectively, a far larger number (36 percent) expects no impact.
- Revenues are expected to increase 5 percent during the next 12 months; profits, 4.4 percent.
- Expected health care cost increases continue to be higher than other costs though they decreased slightly to 5.6 percent.
- Almost half (41 percent) of respondents reported having too few employees, up 3 percent from the fourth quarter of 2017. While slightly less than a third (27 percent) said they plan to hire, those who are hesitating rose slightly to 14 percent. However, it’s worth noting that employment plans vary by companies’ size.
The survey of 818 respondents was done in February, looking forward 12 months. Most (65 percent) of respondents are affiliated with private companies and 43 percent work for companies with $10 million to $100 million in annual revenues.
About Terry Sheridan
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.