CFOs Cautious Regarding U.S. Economy
Courtesy AICPA, c2009
If CPA executives across the U.S. could use one phrase to describe their outlook on the U.S. economy in the fourth quarter, it would likely be “holding steady.” Results from the Fourth Quarter Economic Outlook Survey, sponsored by the American Institute of Certified Public Accountants (AICPA) and the University of North Carolina’s Kenan-Flagler Business School, show that the increase in optimism seen in the second and third quarter surveys has leveled off, and modest expectations for business expansion are mixed with significant uncertainty about the timing of recovery.
Queried on their expectations regarding optimism and expansion over the coming year, corporate financial executives provided insight into two economic indices introduced in this quarter’s survey: the Corporate Optimism Index (COI) and the Corporate Expansion Index (CEI).
After two quarters of improvement, COI for the US economy has stabilized. Overall optimism percentages were virtually unchanged from July 2009—40 percent of respondents expressed pessimism while 27 percent were optimistic. In answering whether their confidence levels had changed from last quarter, 37 percent expressed more confidence, 35 percent about the same confidence and 28 percent expressed less confidence.
The trend also remains stable for chief financial officers who are more optimistic about their own organizations than they are about the broader U.S. economy. Thirty-eight percent of respondents are optimistic about the prospects for their own organizations, consistent with 39 percent from last quarter. Showing a slight increase in optimism, expansion plans are on the uptick. This quarter’s CEI indicates that 45 percent (up from 42 percent last quarter) of respondents now expect their businesses to expand in the next 12 months.
“It seems as though the worst might be over and there are some hints of expansion,” said Carol Scott, AICPA Vice President, Business Industry and Government. “However, the majority of our CFOs and controllers are telling us that they expect a slow recovery and now don’t expect significant improvement until late in 2010 or even into 2011,” she added.
Expectations for when the economy will begin to improve have shifted out once again. Of the 1,201 CPA respondents, 61 percent (up from 43 percent last quarter) do not believe the economy will begin to improve until the second half of 2010 or beyond, and a quarter of respondents believe it will be 2011 before the economy begins to improve. While the percentage of respondents who think the economy is improving now almost doubled, the percentage of respondents who expect improvement before the end of 2009 has dropped from 26 percent to 21 percent.
When asked about potential recovery scenarios less than one percent say they expect a rapid rebound while 69 percent of respondents anticipate a slow economic recovery and 20 percent believe that the U.S. economy will experience a double-dip recession.
In the realm of key performance indicators, 52 percent (up from 45 percent last quarter) now expect revenue increases while the percentage expecting decreases dropped from 42 percent to 36 percent. Regarding profits, 48 percent expect increases, while only 35 percent expect decreases. Expectations for employment improved slightly but continue to lag behind expectations for revenue and profit. Twenty-eight percent of respondents expect to increase the number of employees at their businesses (up from 25 percent last quarter). However 30 percent of respondents still expect a decrease in the number of employees over the next 12 months.