Spending and sentiment on the rise for US finance professionals

Businesses show a sustained desire to spend on technology and employee training while expecting profits to increase – signs that economic sentiment amongst US finance professionals is improving.

Respondents in the American Institute of CPAs (AICPA) Business and Industry Economic Outlook Survey previously have projected rising profits. Until now, that expectation hasn’t been mixed with much optimism about hiring and training workers and investing in IT or other capital projects.

Optimism reached post-recession highs on several fronts in the survey, which captured the opinions of 867 CPA decision-makers, mainly CEOs, CFOs and controllers in business and industry.

The CPA Outlook Index (CPAOI), a measure of nine equally weighted factors, rose to 70 – the highest mark in six years. The rating is up one point from the previous quarter and up four points from the previous year. All nine components of the index, most notably US economic optimism, have risen on a year-over-year basis.

In the survey, optimists about the US economy now outnumber the pessimists 49% to 20%, with 31% neutral. A year ago, 32% of respondents were optimistic about the US economy. Factors cited most often by the optimists in the most recent quarter include employment, consumer spending and political/leadership improvement.

Finance professionals feel even better about their own businesses: 59% are optimistic or very optimistic, compared with 12% who are pessimistic or very pessimistic. A year ago, 50% expressed optimism about their companies.

Key performance indicators

For the fifth consecutive quarter, expectations for profit increased – from 1.4% in the fourth quarter of 2012 to 2.9% in the most recent quarter. Spending expectations also rose: IT spending has risen four of the past five quarters, to a post-recession high of 3.2%, and expectations for training spending have risen or remained steady for the past five quarters. Training and capital spending also hit post-recession highs.

Andy Bonner, CPA, CGMA, is one finance executive planning to spend more on IT. He is the CFO of First Century Bank, which has seven branches in northeast Tennessee. He said several technology initiatives are ongoing.

“We think we can save a lot more money if we go totally paperless,” he said. “We’re not there yet, but we’re about a third of the way through.”

Bonner also expects to upgrade the bank’s computers and continue to focus on customers’ desire for at-home banking options. First Century was among the first community banks in its region to have a mobile app, he said.

Bonner has seen higher demand for loans to build commercial property – one reason he counts himself as optimistic about his organisation and the US economy.

Growing concerns about talent

Regulatory requirements and changes continue to be the top concern for finance professionals, for the fourth consecutive quarter. Employee benefits and costs are second, followed by domestic economic conditions and availability of skilled personnel. Finding talent seems to be a growing concern; it was seventh on the list a year ago and moved up to fourth in the latest quarter.

Despite the optimism, some companies remain reluctant to hire: 56% say they have the right number of employees, compared with 54% a year ago. Among the companies that have too few employees, more are hesitant to hire than planning to hire. The hesitance is more acute in smaller companies than in larger ones. Companies with revenue greater than $100 million are more than twice as likely as companies with revenue less than $10 million to add employees in the next year. Expected staff additions are expected to be 2.1% or higher in multiple sectors, led by big quarterly increases in scientific and technical services, finance and insurance, and retail trade.

Other highlights from the survey:

• Expected cost increases for health care fell from 6.6% in the fourth quarter of 2013 to 6.2% in the first quarter. The cost increase was expected to be 6.3% a year ago.
• The technology sector continues to be the most optimistic, with 80% expressing optimism, compared with 56% a year ago. The construction industry is at 73% optimism, compared with 49% a year ago.
• Retail trade optimism, which dropped two consecutive quarters to 52%, rebounded to 59%.
• Wholesale trade optimism dropped year-over-year, from 54% to 48%, and optimism amongst health-care providers fell to 34%, down one percentage point from a year ago.
• Revenue expectations rose from 3% to 3.6% year-over-year, and staffing expectations grew from 1.1% a year ago to 1.5% this year, tying a post-recession high from the first quarters of 2011 and 2012.
• More than two-thirds of respondents (69%) said their companies would offer bonuses or incentives this year. Bonuses were less common during 2008 and 2009 but are on the rise again, the survey said.

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%]).

Related CGMA Magazine content:

“The Brightest Growth Prospects for 2014”: The global economy is still in recovery, but the uncertainty that clouded forecasts a year ago is beginning to lift. Several bright growth prospects are emerging among developed and developing markets, according to Grant Thornton research.

“How CFOs and Supply-Chain Leaders Can Boost Earnings”: Global supply chains tend to deliver more value when CFOs and supply-chain leaders work closely together, but such a business partnership existed at only about one-quarter of companies EY polled worldwide.

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