For much of the past year, US finance executives have been optimistic about their companies’ prospects, but they’ve been somewhat lukewarm on the prospects of the overall economy.
That mixed view is changing, according to results of the second-quarter American Institute of CPAs (AICPA) Business & Industry Economic Outlook Survey, which was released Thursday.
The CPA Outlook Index (CPAOI) rose three points to 69, tied for the highest rating in the five-plus years of the index. Most notable: Optimism about the domestic economy – one of nine components in the index – climbed to its highest level in at least five years.
In the survey of 1,185 business decision-makers, optimists about the US economy outnumber pessimists nearly three to one. US economic optimism rose to 66 points, up 16 points from the previous quarter, and up 12 from the second quarter of 2012. A reading above 50 indicates a generally positive outlook.
The other eight components of the index also climbed, compared with the first quarter. Compared with year-ago results, only two components of the index – profits and IT spending – declined.
Prem S. Katyal, CPA, said he’s an optimist about the future of his company and the US economy. Katyal, the CFO at New York-based Royale Linens Inc., which sells top-of-bed products such as sheets and comforters to retailers in North America and Europe, said consumer hesitance hurt the economy at the beginning of the year. Katyal, who did not take part in the survey, said that the expiration of the Social Security payroll tax cut affected US consumers, who had been paying 4.2% of their wages toward Social Security taxes for two years, but starting January 1st had to pay 6.2%.
“Then the IRS was delayed on tax refunds, so when people weren’t getting their checks, that slowed [spending] down,” Katyal said. “I felt like we just needed time. As soon as people get [refund] money in their pocket, and they get over the hump of, ‘Oh, I lost 2% of my pay,’ that’ll get the economy going again.”
James Glassman, a senior economist at JP Morgan Chase & Co., considers the US to be in the “top of the fourth inning” of an economic recovery. Despite perceived challenges at the start of the year, including the payroll tax cut’s expiration, jobless claims began to go down. Combined with a rise in the stock market – the S&P 500 was up 15% year to date through June 3rd – and a rosier outlook in the housing sector, Glassman predicts the US is on the way to a full recovery from the recession levels of 2008.
CFOs in other parts of the world are also upbeat. Deloitte’s Global CFO Signals survey shows less frustration and more optimism from finance chiefs around the world.
Other highlights from the AICPA survey:
Challenges: Regulatory requirements and changes rank as the top challenge to respondents’ companies, displacing domestic economic conditions, which held the top spot four consecutive quarters. Employee and benefits costs remained the No. 3 challenge for the second quarter in a row.
Company outlook: Company optimism rose five points in the index to 72, the highest it has been since the first quarter of 2012. While expectations for profits are down slightly from the first quarter of the previous year, the index reading of 67 is seven points higher than in the fourth quarter of 2012. Revenue outlook (74 points) was flat on a year-over-year basis, but up two points from the previous quarter.
Hiring: Respondents remain cautious about hiring. A few more companies, compared with the previous quarter, say they have an appropriate number of workers. Of those who say they don’t have enough employees, 62% are hesitant to hire. Respondents project staffing to grow 1% over the next year, down slightly from the previous quarter’s projection of 1.1%.
Sector sentiment: The technology sector had the highest percentage of optimists (68%), and construction optimism rose for the third consecutive quarter to 59% – the longest streak recorded by any sector in the past year. Optimism in the retail sector is up to 64%, compared with 47% in the first quarter of this year.
Related CGMA Magazine content:
“CFOs’ Optimism on the Rise”: CFOs in the United States have greater expectations for economic growth in the next 12 months compared with the sentiment of their counterparts in Italy and France. A first-quarter survey showed that US CFOs project higher net earnings and revenue.
“The Core Priorities for North American CFOs”: A quarterly CFO report by Deloitte shows that supporting strategic initiatives is a top priority in the coming year, and CFOs consider retention of talent a key issue.
—Neil Amato (email@example.com) is a CGMA Magazine senior editor.