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In the News: Executives Pessimism Towards Economy Erodes Confidence in Own Organizations

CPA Outlook IndexWith the announcement yesterday that the Federal Reserve is launching a third quantitative easing in an attempt to generate momentum for the stalling recovery, the economy—and unemployment—are back in the spotlight.

The AICPA’s 3rd quarter Economic Outlook Survey results were released last week, which provided insights into the direction of the economy from 1,365 qualified CPAs who hold leadership positions, such as chief financial officer or controller, in their companies. Their gloom was reflected in last week’s jobs report, which showed the labor market continuing to stagnate and served as one of the reasons behind the Fed’s actions yesterday.

The survey results were covered by the Wall Street Journal’s CFO Report, which noted that as corporate executives are becoming more pessimistic about the economy, their plans to expand could be put on hold. Respondents noted they are less likely to hire than they were the previous quarter. However, despite a quarter-to-quarter decline of 3 points in the hiring index, the outlook remains positive at 59.

Jim Morrison, chair of the AICPA’s Business and Industry Executive Committee told Voice of America that political and economic uncertainties are making managers reluctant to take the risk of hiring new people who might have to be laid off if the economy slumps again. “Until [executives] see strong signs of recovery, I don’t think there is going to be enough hiring out there to realty bump that unemployment number one way or the other," said Morrison.

The AICPA’s CPA Outlook Index, which measures executive sentiment, fell to 63 in the third quarter from 67 in the second and 69 at the beginning of the year. A reading over 50 means the overall sentiment is positive.

The North Bay Business Journal reports that while sentiment has fallen, the outlook is better than that of the third quarter of  last year, when the composite index was 58. And it’s well above the lowest point—32 for the first quarter of 2009.

“One change this quarter is the dimmer view survey takers hold of their own companies’ outlook over the coming year,” said Arleen R. Thomas, CPA, CGMA, the AICPA’s senior vice president for management accounting. “For the first two quarters in 2012, more than half said they were optimistic about their organization’s prospects. Now, only 44 percent say so.”

Other findings of the survey include:

Top Challenges – Survey takers have consistently identified “Domestic Economic Conditions” and “Regulatory Requirements/Changes” as the No. 1 and No.2 business hurdles over the past 12 months. This quarter, “Domestic Political Leadership” moved up to the No. 3 spot, continuing its rise from No. 6 at the end of 2011.

Industry View – All industries suffered a decline in their perceived prospects this quarter. Manufacturing and real estate remain the most optimistic sectors. Technology and construction suffered sharp drops in optimism.

Spending Plans – Investment is still supposed to increase slightly in most categories, but the expected rate declined substantially in information technology, marketing and research & development. Despite that, IT still leads the pack for planned spending increases in aggregate, while R&D investment is expected to lag other categories.

Key Performance Indicators – Modest growth is still expected, but expectations for revenue, profit and headcount growth all fell slightly for the second straight quarter.

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