By Frank Byrt
The first quarter American Institute of CPAs (AICPA) Business and Industry Economic Outlook Survey is out, and it looks like respondents are increasingly optimistic about the US economy and their own businesses' prospects compared to the fourth quarter of 2012. Survey results show that the CPAs surveyed expect a slight rise in sales, profits, and employee headcount in the near future.
The survey, which was conducted February 13-28, 2013, included 1,376 qualified responses from CEOs, CFOs, controllers, and other CPAs in US companies who hold executive and senior management accounting roles.
The overall results of the survey showed the CPA Outlook Index, which is a comprehensive gauge of executive sentiment within the survey, rose seven points to 66 in the quarter, which is the largest quarterly jump in more than two years. But the index is still below its post-recession high of 69 in 2012 and first quarter 2011.
The early year optimism of 2011 and 2012 didn't play out in the form of a recovery over the following three quarters of each of those years, which may be one reason for executives' cautious views now. "While this is the fourth consecutive year of first-quarter improvements over the prior fourth quarter, these first quarter surges have not been sustained during 2011 and 2012 in the face of continuing challenges in the economic and political environment", the AICPA said.
But a sign that CPAs expect improving conditions once again this year is that all components of the index showed improvement in the first quarter over the fourth quarter of 2012.
Included among the index measures is the US Economic Optimism component, which recovered a strong 14 points to a "neutral" reading of 50, despite continued concerns about current fiscal policy issues and soft employment accompanying the slow economic recovery.
The CPA Outlook Index is a composite of nine, equally weighted survey measures set on a scale of 0 to 100, with 50 considered neutral and greater numbers signifying positive sentiment.
- Top challenges to businesses: (1) domestic economic conditions, (2) regulatory requirements and changes, and (3) employee and benefit cost concerns.
- Respondents' views about the prospects and expansion plans for their own companies have recovered somewhat from weak levels of the second half of 2012. In the first quarter, 50 percent of respondents say they're optimistic about their own businesses, up from only 41 percent last quarter. Fifty-eight percent are planning to expand over the coming year, up from only 50 percent last quarter.
- After a progressively downward slide through 2012, expectations for increases in revenues, profits, and headcounts rebounded in the first quarter of 2013. Revenues are currently expected to increase at a 3 percent rate, profits at 2.1 percent, and headcounts at 1.1 percent.
- Expectations for prices continue essentially unchanged. Prices paid are expected to increase by 2 percent over the next twelve months, while prices charged are only anticipated to increase by 1.3 percent.
- Expectations for salary increases are slightly higher this quarter, increasing from 1.9 percent in the fourth quarter of last year to 2.1 percent.
- Expectations for health care cost increases are stable, at 6.3 percent.
- Plans for increased corporate spending have also rebounded from last quarter. IT spending is expected to increase 2.7 percent over the next twelve months, up from 2.1 percent last quarter. Spending on other capital projects is also expected to increase by 1.9 percent, up from 1.3 percent last quarter. Employee training is expected to increase at a 1.3 percent rate, up from the 0.7 percent projected last quarter.
- About 54 percent of business executives say their companies have the right number of employees, while 12 percent said they plan to hire soon, up from 8 percent in the previous quarter.
"Corporate executives are still concerned about unemployment levels, deficit and debt issues, and political gridlock", said Arleen Thomas, CPA, and the AICPA's senior vice president for management accounting and global markets. "But a solid majority of survey takers now expect to see their business expand in the coming year, and we're seeing a slight uptick in hiring plans."
Jim Morrison, CPA, CGMA, AICPA Business and Industry Executive Committee chair, and CFO of Teknor Apex, told AccountingWEB it appears to him that the largest companies are leading a slow economic recovery. While some smaller and medium-sized companies have reasons to be optimistic, larger companies tend to be a little more cautious when it comes to expansion and hiring.
"Our company is a medium-sized plastics manufacturer, and we sell to just about every industry – housing, automotive, medical, and consumer [goods]", Morrison said. Teknor Apex supplies material to other manufacturers or products built to customers' specifications.
Morrison continued",So if you were to use us as a gauge for the economy, we're actually seeing some pretty good strength out there. And the one [industry] that's been so slow over past three years – housing – is even showing some positive trends." That could be a particularly good sign for the economy as a whole, he said.
The first quarter's Survey within a Survey focused on executives' views on the fiscal options facing the federal government and the importance of various initiatives for respondents' businesses in 2013.
Surveyed just ahead of the government's sequestration budget deadline of March 1, 47 percent of respondents favored letting the sequestration budget cuts take place as scheduled, while only 15 percent were in favor of deferring the scheduled cuts until the economic growth and hiring picture improves. The remaining 38 percent indicated a preference for a stop-gap solution of tax increases and cuts to avert the potential impact of scheduled military and domestic cuts, the report said.