The outlook on the U.S. economy declined further among CFOs, controllers and CPAs in executive and senior management accounting roles in the third quarter, according to a survey by the American Institute of CPAs.
The Institute’s CPA Outlook Index fell another 8 points to 58 in the third quarter from 66 points in the second quarter of the year. “Our CPA members in business and industry are now more pessimistic about the future direction of the U.S. economy than they’ve been since 2009,” said AICPA vice president for business, industry and government Carol Scott on Wednesday. She noted that the trend was reminiscent of indicators seen just before the country went into a recession.
Sixty-one percent of the survey respondents said they think it is “somewhat likely” or “very likely” the U.S. would suffer a “double-dip” recession. Only 9 percent of CPAs in executive positions expressed optimism about the U.S. economy in the third quarter, down 24 percentage points from the 33 percent who said they were optimistic in the second quarter.
The survey indicted that the hiring outlook in the U.S. remains flat. Only 10 percent of the companies whose executives were surveyed currently plan to hire, down slightly from 12 percent three months earlier. But that is offset by the 10 percent who say they have excess employees. Fifty-eight percent of the survey respondents said they have the right number of employees and don’t expect to hire for now, while 21 percent said they have too few employees to meet their needs but are hesitant to hire because of the economy.
While the outlook for the economy has turned negative, 41 percent of the 1,305 survey respondents remained optimistic about the prospects for their own organizations. However, every single component of the CPA Outlook Index declined in the third quarter, Scott noted, and CPAs’ outlook for their own organizations was down 8 points from 68 to 60. Expansion plans were down 7 points, revenue was down 5 points, capital spending was down 6 points, and training and development fell 6 points.
“Based on the comments we received from members in this survey, the biggest driver for this negative swing in sentiment was the chaotic and uncertain political process in Washington,” said Scott. “That and the magnitude of the U.S. debt, the budget deficit, and the continued high U.S. unemployment made for this negative swing.”
Teknor Apex Company CFO Jim Morrison, CPA, manages a diversified materials science company based in Pawtucket, R.I., that produces custom plastics and rubber raw materials for industry. He noted that CPA executives are still relatively confident about their own organizations’ ability to make profits, although they were not as positive as they were three months ago.
“The key here is that business executives have control over the decisions they make, and they make these decisions for the good of the company as a whole,” he said. “But today they’re seeing that that kind of thinking appears lacking in government. You’ve got this combination of a lack of confidence in the economy and then in the government as well. It just keeps businesses in a holding pattern right now. Businesses will be hesitant with this kind of capital outlook, and they sure won’t hire people if there is a hint of another recession. You hire people when you see growth. That’s not the situation at the present time. There’s just too much volatility in the marketplace and little confidence in a concerted government effort to address the issues we all face. So for now we seem to be treading water and our arms are getting a bit tired.”
The survey did not address any of the tax cut plans for new hiring that have been proposed in recent weeks by various presidential candidates and are expected to be part of President Obama’s jobs speech on Thursday evening. The survey, however, did ask about the debt ceiling and whether CPA financial executives expect to see a moderate or significant impact on their businesses from the spending cuts in Washington. Twenty-six percent of the respondents said they expect to see a significant or moderate impact on their business due to the spending cuts, and 47 percent said they only expect minimal impact, according to Scott.
“The area of spending they expect to have the largest impact is Medicare and Medicaid,” she added. “Most respondents said they would have preferred more spending cuts in the debt ceiling, 7 percent felt spending shouldn’t have been reduced until the recovery was better, and 29 percent would have preferred more taxes.”