CPAs expressed their highest level of optimism about the U.S. economy this quarter since the third quarter of 2007, according to a new survey.

The upbeat assessment in the latest AICPA/UNC Quarterly Economic Outlook Survey follows a modest outlook last quarter. In addition, there was a slight improvement in expectations for hiring and an uptick in plans for capital spending for IT and other areas over the next 12 months.  On the broader level, there was concern about inflation.

This quarter the Economic Outlook Survey introduces a new index. The CPA Outlook Index is a broad-based composite index that captures the expectations of our members and their plans for a breadth of indicators of economic activity. It is a composite of nine survey measures at equal weights. The CPAOI increased by 0.07 this quarter to reach 0.69.  A reading above 0.5 indicates a generally positive outlook with increasing activity. A reading below 0.5 indicates a generally negative outlook with decreasing activity. 

“We see a substantial bounce in optimism about the economy for the first time in nearly three years,” said AICPA vice president for business, industry and government Carol Scott in a statement. “The new composite index shows positive movements across the board.  However, this seems to be tempered by concerns about inflation.”

Forty eight percent of CPAs serving in executive positions expressed optimism about the U.S. economy in the first quarter, up 20 percentage points from the 28 percent who were optimistic in the fourth quarter. Companies with current hiring plans rose by three percentage points to 13 percent. All industries expect to increase hiring in 2011, with the average expected increase in number of employees rising to 1.5 percent, compared to 0.6 percent in Q4 2010.

Fifty-seven percent of survey respondents are now optimistic or very optimistic about the prospects for their own companies. Sixty-six percent of respondents expect their businesses to expand during the next 12 months. The technology sector is leading the way with an expected headcount increase in 2011 of 4.4 percent. 

“The most striking feature is the consistency of optimism across all nine components of the Outlook Index,” said University of North Carolina accounting professor Mark Lang. “Respondents are optimistic about their own organizations as well as the economy as a whole and, most importantly, their optimism is translating into planned spending and employment increases.  It appears that the recovery continues to accelerate.” 

Fifty-five percent of respondents expressed concern about inflation, up 21 percentage points since from the previous quarter. Thirty-six percent of respondents indicated concern about rising material costs, while 18 percent are concerned with an increase to energy prices. However, 47 percent do not expect to pass increased costs onto customers during the next quarter. 

There has been a very slight change in reported hiring plans among the CPA executives polled. Thirteen percent of respondents, up from 10 percent last quarter and 8 percent a year ago, now indicate that they don’t have enough employees and plan to hire. The number that don’t have enough and are reluctant to hire dropped a corresponding 3 percent from 22 percent in Q4 2010 to 19 percent this quarter

Hiring plans are improving slightly at the respondents’ companies. However, expectations for employment returning to pre-recession levels for many pushed out into 2012. Only 7 percent are expecting to return to pre-recession levels in the next 12 months. Twenty-three percent are expecting that to happen in 12–24 months. Twenty-eight percent do not expect to return to pre-recession levels in the foreseeable future. Seven percent have already returned to prerecession levels and 31 percent indicate that they did not decline

Cash and liquidity positions have changed very little among the survey respondents since the last quarter. Almost half (46 percent) of respondents are where they want to be with 30 percent indicating they have too much and 24 percent indicating too little.

Customer demand, employee health care costs and regulatory requirements remain the top challenges with economic and political instability debuting at No. 4

The number of companies planning increased IT spending rose from 47 percent to 52 percent, and the number planning increases in other capital spending rose from 42 percent to 48 percent. The average expected increase in IT and other capital spending rose to 2.3 percent and 2.1 percent respectively. 

Forty-five percent of respondents plan to take some advantage of the first-year tax deduction for eligible equipment in 2011, but only 12 percent expect to be able to take advantage of the full deduction.  Most respondents (60 percent) believe that reducing the regulatory burden would have the most impact on job creation.

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