Confidence in economy rises amongst CGMAs, new survey shows

In the past three months, Chartered Global Management Accountants have become more confident about current economic conditions, a new quarterly survey of AICPA and CIMA members suggests. But their optimism was still at low levels.

The CGMA Global Economic Index, a composite of 10 equally weighted indicators such as expansion plans and expectations for revenue, employment and capital spending, rose seven points  to 65 out of 100 during the first quarter. Each of the 10 components of the index showed gains over the results from the fourth quarter of 2011.

More than 600 business leaders who carry the CGMA designation answered the survey between February 22nd and March 13th. Of the respondents, executives in emerging markets and the US were the most upbeat.

Respondents from Asia lost a little confidence as economic growth in China and India began to slow in the first quarter, but they still scored higher than their peers from the United Kingdom and the rest of Europe.

“In my business I have an improving picture,” said Don Kluthe, CEO and president of AmeriTrust Home Improvement Finance, a consumer lender based in Omaha, Nebraska. Kluthe was amongst 137 US respondents who participated in the survey. “I see an improvement in prepayments and delinquencies.”

Jim Morrison, CFO at Teknor Apex, a manufacturer of plastic compounds in Pawtucket, Rhode Island, has also seen a small pickup in US sales. “Not huge,” Morrison said, “but it’s been a continuing growth over the past year.” Morrison, who chairs the AICPA Business and Industry Executive Committee, also participated in the survey.

The findings are the first from a quarterly global survey that AICPA and CIMA launched along with the CGMA credential. The survey, based on the views of CEOs, CFOs, controllers and other senior business executives from around the world, provides a bellwether of the health of the corporate sector and the global economy. Baseline data was collected in November 2011.

The 17 European countries that make up the euro zone have struggled with a debt crisis in Greece and deteriorating credit ratings for Italy, Spain and Portugal.

Euro-zone leaders agreed in March to bail out Greece. Fifty-two percent  of the CGMAs polled considered it likely that Greece would exit the euro zone in the next 18 months. About one-quarter of the respondents considered it likely that the entire euro zone would break up in that period.

US respondents were least worried about a euro-zone breakup affecting their businesses. Still, one-third of them said it would have a very significant or moderately significant impact.

About one-quarter of Teknor Apex’s sales are from Europe and Asia. But sales to European manufacturers are down slightly. “They’re the ones who are a bit shaky right now,” said Morrison, whose company supplies manufacturers of wire, cable, billboards and roofing, and the auto and medical industries.

Micro Tool 100, a cutting tool manufacturer in Meridian, Idaho, is singing a similar tune: “Things are definitely slowing down in Europe,” said Michael Armstrong, the company’s CFO, who also participated in the survey. “We’re not seeing sales growth in Europe.”

Up to 12% of Micro Tool 100’s sales are to distributors in Europe, Asia and South America. Despite the European slowdown, it’s not all bad. Sales to Asia are higher than a year ago despite the Chinese economy’s slowing growth, Armstrong said. Micro Tool 100 supplies cutting tools used in producing iPads in Asia. The company also recently added its first significant customer in Vietnam.

Respondents in Asia were more worried about the risk of inflation than others in the survey. India and China took measures to rein in rising inflation in the past six months, but 72% of respondents from Asia were worried in the first quarter, up from 59% in the previous quarter.

Labour costs were the top concern amongst respondents in Asia. Thirty percent said labour costs were the inflationary factor representing the most risk.

Other key findings:

• More than 50% of respondents in all regions are now optimistic about the prospects for their own companies. Respondents in manufacturing industries were the most optimistic. Respondents in the construction business were the least optimistic.

• Sixty-six percent expected their businesses to expand during the next 12 months. Respondents in emerging markets (78%) are the most likely to expand.

• Expected increases in revenues, profits, headcount, and spending budgets improved for all regions, except for Asia. Expectations were lowest amongst respondents in the UK and European countries.

• Twenty-four percent of companies in Europe and 29% of companies in Asia were worried that obtaining financing would become more difficult. Only 14% of UK companies and 15%  of US companies agreed.

—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.