Role reversal: Economic pessimism in the US meets signs of positive sentiment globally

Three months ago, the economic outlook in the US appeared to be hobbled by uncertainty in Europe, where the effects of a debt crisis still linger. Now, it seems, the outlook in the US has a much more pronounced limp, with election-season uncertainty partly to blame.

But a drop in US optimism has been offset by signs of positive sentiment elsewhere, according to the third-quarter CGMA Global Economic Forecast, released Thursday. The quarterly report’s economic sentiment index remained at 58, the same as the second quarter but seven points lower than the first quarter of 2012.

More than 500 US economic decision-makers took part in the global survey of chief executives, CFOs and controllers, making up 43.3% of the 1,179 respondents. Answers from CGMAs in 62 countries were recorded between August 22nd and September 19th. The survey uses ten equally weighted indicators to formulate an overall index. A rating of 50 is neutral, and anything above that is considered positive.

While some regions have grown slightly more optimistic – the UK being one – CGMAs in the US have declining confidence in their country’s economy. US optimism has fallen sharply, from 44% in the first quarter, to 36% in the second quarter and 22% in the third quarter. US survey respondents expressed less optimism about their own businesses, dropping from 51% to 45%. They also project lower revenue, profit and staffing.

The US, which had declines in just about every indicator, is on edge with the presidential election between incumbent President Barack Obama and Republican challenger Mitt Romney, the former Massachusetts governor, about a month away.

“Executives are mired in uncertainty,” said Arleen Thomas, CPA, CGMA, and the AICPA’s senior vice president–Management Accounting. “Many are guardedly optimistic about their own businesses but unsure about the political, regulatory and economic landscape around them. That is driving a pessimistic sentiment that is keeping the brakes on hiring and expansion.”

Mick Armstrong, CPA, CGMA, took part in the survey. Armstrong, the CFO of Micro 100 Tool Corp. in Meridian, Idaho, said his company has been up and down so far this year.

“Our first quarter was pretty strong, but then we just saw things kind of taper off,” he said. “August and September started to tick back up.”

But that slight improvement in late summer was not enough to counteract the poor second quarter.

He says the company’s overseas business has struggled even though Micro 100, in late 2011, hired a sales representative specifically to find business in Europe.

“Europe is still soft, and we’re holding our own in Asia, regaining some business there that we had lost,” Armstrong said. “Right now, we don’t see any clear opportunities in Europe.”

Brighter outlook beyond US

Although worries about global and domestic economies continue, especially in Europe, every surveyed region but the US expected a rise in revenues. Globally, revenue in the next 12 months is expected to rise 3% after a 2.7% projection in the second quarter. Profit expectations rose from 2% to 2.4%.

In the UK, measured separately from Europe, 342 respondents expressed a sliver of hope. The UK’s overall index rose to 53, from 50 the previous quarter.

Organisation optimism in the UK rose to 45% from 38% the previous quarter, and CGMAs there no longer list domestic economic conditions as their top challenge. Instead, regulatory requirements are the top obstacle. UK CGMAs expect slight gains in revenue, profit, staffing levels and IT spending.

Other highlights from the survey:

• Global economic optimism fell to 7%, the lowest since the survey began in the fourth quarter of 2011.

• In-country economic optimism fell 8 percentage points to 21%, weighed down by the US drop from 36% to 22%.

• In Europe, companies expect a 1.3% reduction in staffing over the next 12 months. The projection was a 1.1% drop in the previous quarter.

• The technology sector saw increased optimism, from 41% in the second quarter to 60% in the third quarter, and manufacturing optimism rose from 45% to 50%.

• Optimism in the finance and insurance sector fell from 53% to 48%, and banking fell from 48% to 33%. Banks expect staffing to drop 1.3% in the next 12 months.

• Asia and Rest of World Developed (RoWD) – Australia, Canada and New Zealand – joined the UK in posting three-point improvements in their index. Asia rose to 61, and RoWD rose to 60.

—Neil Amato (namato@aicpa.org) is a CGMA Magazine senior editor.