US finance professionals are feeling good on a number of fronts. They are optimistic about the US economy and their own businesses. Most expect to make a higher profit than they did a year ago, and an increasing number say they’d like to hire additional staff.
That last part is, however, becoming more of a challenge. Organisations, possibly as a result of struggling to find the right workers, are devoting more money to training existing staff, according to the most recent quarterly American Institute of CPAs Business & Industry Economic Outlook Survey.
The CPA Outlook Index (CPAOI), a measure of nine equally weighted factors, rose to 72 – the highest in more than six years. The index (see table below) continued a steady climb from previous second quarters; it was 69 in the second quarter of 2013.
US economic optimism, which is one component of the index, rose two points to 67 compared with the previous quarter. Year over year, sentiment about the US economy is up one point. Sentiment about the global economy was also on the rise amongst CPA decision-makers: In the most recent survey, 31% of respondents were optimistic about the global economy, 51% were neutral, and 18% were pessimistic. A year ago, 24% were optimistic about the global economy, 50% were neutral, and 27% were pessimistic.
The most recent survey used 1,810 qualified responses from CPA decision-makers, mainly controllers, CFOs, and chief executives.
Availability of skilled personnel ranked third on a list of challenges, up from sixth a year earlier. The top challenge, for a fifth consecutive quarter, was regulatory requirements and changes, and second place went to employee and benefits costs, which has held the No. 2 spot for three straight quarters.
That shuffle in the challenges list could be one reason training costs are projected to rise. In the second quarter of 2010, for instance, when the overall CPAOI was at 61, training did not register as a big priority; companies were projecting an increase of just 0.1% for training in the coming 12 months.
That number rose to 1.8% in the most recent survey, up from 1.3% a year ago. The training projection increased or remained steady in 16 of the past 21 quarters.
Companies also want to hire more than in the past. The number of companies with too few employees that plan to hire increased from 12% a year ago to 17% in the most recent quarter.
Despite the talent challenges, companies in general feel good about growth prospects in the coming year. One of those companies is Illinois-based Shorr Packaging, where targeted growth is 12% a year, according to COO Craig Funkhouser, CPA.
Shorr distributes protective packaging such as plastic air pillows for e-commerce companies as well as general mailing and food service. Funkhouser said the company is looking to expand to new markets such as Atlanta and Southern California, adding sales and warehouse employees.
The company’s biggest challenge is margin pressure. “As we expand into new markets, people don’t know who we are, and sometimes our sales people end up selling based on price instead of on value,” Funkhouser said. “That’s what we deal with to get market share, so our margins do get squeezed a bit.”
Shorr had revenue of $186 million in 2013, Funkhouser said, and expects to hit $220 million this year.
It’s not the only company forecasting growth. Respondents predict revenue to rise 3.8%, the highest rate in five years. Profit is projected to grow 2.9%, up from 2.4% from the second quarter last year. In the index, profit optimism was up two points from the same quarter last year, but down a point from the first quarter – the first dip in five quarters.
Finance professionals expect their businesses to increase staffing 1.3%, up from 1% a year ago. Expected salary and benefits increases have remained relatively steady since 2011, coming in at between 1.9% and 2.3%. This quarter, the expected rise is 2.1%.
Other highlights from the survey:
- IT spending for the next year is projected to rise 3.1%, just off the post-recession high set the previous quarter. Other capital spending is at its high mark, projected to rise 2.4%.
- Projected health-care costs moderated somewhat, dropping from 6.7% a year ago to 5.7%.
- The technology sector had the highest overall optimism (72%). Notable year-over-year changes by industry include construction (69% optimism, up ten percentage points), real estate (up nine percentage points to 69%), finance and insurance, and professional services (both up five percentage points to 64%), and health-care providers (48%, up 17 percentage points but still the least optimistic sector).
- Construction hiring is projected to grow 3.3%, the highest rate of any sector, and is up from 2.1% a year ago. Projected hiring for manufacturing dropped from 2.1% in the first quarter to 1.7% but is still ahead of the 1.2% projection from the second quarter of last year.
- All four regions have similar optimism, and all are up or steady from the previous year. However, optimism dropped in the West and Northeast compared with the previous quarter, and it rose in the Midwest and South.
About the CPAOI
Each component of the CPAOI is calculated by taking the percentage of respondents who indicated that their opinion or expectation for the metric is positive or increasing, and adding to that half of the percentage of respondents indicating a neutral or no-change response. A reading above 50 indicates a generally positive outlook with increasing activity. A reading below 50 indicates a generally negative outlook with decreasing activity.
For example, if 60% of respondents indicate an optimistic or very optimistic view and 20% express a neutral view, the calculation of the component indicator would be 70 (60% + [0.5 × 20%]).
CPA Outlook Index Component Indicators
Related CGMA Magazine content:
“Access to Talent a Rising Concern for CEOs Around the World”: Availability of key skills is the biggest threat to organisations’ growth, according to 63% of chief executives in a PwC survey. That’s an increase of five percentage points from the previous year. The report lists five priorities that can help CEOs and other stakeholders combat a lack of talent.
“Four Themes for Growth-Conscious CFOs”: US CFOs cite talent and technology as key factors in their organisations’ ability to grow in the coming year, according to a survey by The CFO Alliance. Read more about those factors and the CFOs’ thoughts about their ever-changing role.
—Neil Amato (email@example.com) is a CGMA Magazine senior editor.