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In the News: CPAs Pessimistic on Economy in 2016

Eos q4With the stock market dropping sharply to begin the new year, Americans are increasingly focused on the health of the economy. CPAs who hold leadership positions in U.S. companies, such as CEOs, CFOs and controllers, are pessimistic on the U.S. economy for the coming year. That’s according to the AICPA’s 4th quarter Economic Outlook Survey.

The survey found that overall expectations for revenue growth had declined to 2.9 percent, down from 3.3 percent in the previous quarter and 4.7 percent in the fourth quarter of 2014. In addition, profit growth expectations slid from 2.6 percent in the third quarter of 2015 to 2 percent last quarter.

The diminished expectations contributed to an overall decline in sentiment about their own organization’s anticipated performance for the coming year, with 53 percent of respondents expressing optimism. That’s down from 59 percent the prior quarter and 67 percent the previous year.

“You have optimism declining,” Valerie Rainey, chair of AICPA’s Business & Industry Executive Committee, told the Wall Street Journal, which reported that executives are worried about China and Europe, regulation, and political gridlock.

Low inflation also helped to ease concerns. Only 23 percent of those surveyed said they worried about inflation, two percentage points lower than in the third quarter.

“We’ve been operating in an environment of low inflation for quite some time at this point,” Rainey said. There is “no indication,” of high inflation going forward, she said.

CFO.com quoted Arleen Thomas, AICPA’s senior vice president of management accounting and global markets, on the challenges the economy faces.

“We’re seeing rising concern about U.S. economic conditions and domestic competition,” she said. “Those factors, coupled with a potential slowdown in the global economy, have contributed to a perception that growth opportunities are going to be more challenging in the near-term.”

On a positive note, the survey found CPAs were more bullish on hiring.

CFO.com reported that roughly 18 percent of the respondents said their companies are looking to hire immediately, the same as last quarter. There was a slight drop in the percentage of respondents who said they had too few employees but were hesitant to hire (20 percent in the third quarter, compared with 17 percent in the fourth quarter). Overall, 53 percent of respondents said their companies had the right amount of staffing.

The AICPA survey is a forward-looking indicator that tracks hiring and business-related expectations for the next 12 months. As a point of comparison, the U.S. Department of Labor’s November employment report, scheduled to be released tomorrow, looks back on the previous month’s hiring trends.

The CPA Outlook Index—a comprehensive gauge of executive sentiment within the AICPA survey— fell two points in the fourth quarter to 69, the fourth consecutive drop from a post-recession high of 78 in the fourth quarter of 2014. The 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.

Other key findings of the survey:

  • The percentage of companies that expect their business to expand dropped three percentage points over the past quarter to 57 percent. It was at 71 percent in the fourth quarter of 2014.
  • Growth in IT investments led planned spending categories again, but dropped two-tenths of a percentage point from the previous quarter to 2.8 percent.
  • Professional services topped all categories for expected headcount growth in the coming year at 2.7 percent. The mining and natural resources sector swung from a positive to a negative growth projection for headcount in the quarter.
  • For industry sectors, optimism about retail trade, wholesale trade, manufacturing, real estate, finance and insurance, health care provider, and health care other dipped below the 50 percent mark in the quarter. In general, optimism was down across all sectors.

-James Schiavone, Senior Manager – Public Relations, American Institute of CPAs. 

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