US CPAs are positive but keeping an eye on training, wage pressure

The economic outlook overall remains strong amongst US accountants. The main headwinds are ones that finance decision-makers can see clearly.

Wages and other employee costs are projected to increase, and hiring the right people is expected to become more difficult. So, to keep from losing longtime workers and to ensure they retain new employees, companies are placing more emphasis on training.

That’s according to the AICPA’s latest Business & Industry Economic Outlook Survey, which polled 726 finance executives in the US.

Investment in training is projected to rise 2% in the coming 12 months, the highest mark since the fourth quarter of 2014, when a 2.2% rise was projected. The fourth quarter of 2014 was also the last time employment growth was projected at a rate higher than 2%. In the current quarter, employment is projected to grow 1.8%, according to the survey, which was released Thursday. That’s the same projected employment growth percentage as last quarter and the highest since a 2.1% forecast in the fourth quarter of 2014.

Employment challenges

The top two challenges in the survey are employee and benefits costs, followed by availability of skilled personnel.

One company expecting to grow staff and revenue in the next year is Prime Shine Inc., a car-wash company with 18 locations in central California. The company’s CFO, John Schneider, said Prime Shine plans to add two locations in the next 18 months, helping it reach a strategic goal of 20 stores by 2020.

The company goes to great lengths to recruit and train employees, Schneider said. Fewer than 5% of applicants to Prime Shine end up working there, and new associates spend a large part of their first two months on the job in training – first at corporate headquarters, then with a manager, then with a shift leader. “For us, it’s all about our human capital,” Schneider said. “We expect everyone to be customer-focused.”

Prime Shine offers full-time work along with health benefits, a retirement plan, and profit sharing to its staff of about 200. The current minimum wage in California is $10.50 per hour, but Prime Shine’s starting rate is $11.50. Schneider said concerns about wage increases mandated by California’s Legislature could lead to changes in benefits or pricing strategies. In several yearly increments, California’s minimum wage will rise to $15 an hour for all workers in 2023.

“Those are things that we’re going to be looking at every year,” Schneider said. “Whether employees have to bear more of those costs, we don’t know. Alternatively, we may choose to sacrifice some profit in order to maintain a high-quality workforce.”

Jared Ray, CPA, co-owner and CFO of Greentree Enterprises in Oregon, faces similar concerns. The minimum wage in the area near Portland, the largest city in Oregon, is rising to $11.25 an hour starting July 1st, up from $9.75.

Greentree is a franchisee of 14 McDonald’s restaurants, and a little less than half the workforce is currently making minimum wage. While Ray is generally optimistic about the company, he said that the wage changes present a challenge. Pricing changes and an emphasis on training are the steps Greentree has taken in the past 12 months to offset the wage increases.

“That’s going to hit us pretty hard, but other than that, our business has been strong this year,” Ray said. “We don’t see any reason for it not to continue. We’re investing heavily in our restaurants, rebuilding one and remodelling two others.”

Ray and Schneider project revenue growth in the coming year.

Revenue, profit projections remain up year over year

Projections for revenue and profit fell compared with the previous quarter, but they remain substantially higher than projections from a year ago. Profit was projected to rise 1.5% in the second quarter of 2016. For the current quarter, that projection is 3.2%.

While half of respondents say they have the right number of employees, 24% say their companies have too few employees and are planning to hire. That plan-to-hire number has risen five consecutive quarters, from 15% in the first quarter of 2016.

Gary Stoker, CPA, the controller at Colorado-based Roth Distributing, is another finance executive expecting his staff count to increase. Roth, which supplies high-end household appliances to dealers, retailers, and homebuilders in 15 central US states, is ahead of its annual revenue projection of $95 million, up from $61 million in 2013.

The company has added to its sales and accounting staff and continues to look for skilled employees to perform data analysis. “With the higher sales growth, we need more analysis and better information,” Stoker said.

About the CPAOI

The quarterly survey includes the CPA Outlook Index (CPAOI), an equally weighted, nine-measure component of economic sentiment. Overall, the CPAOI slipped a point to 75, from 76 in the first quarter but still ahead of the 68 recorded a year ago. Year over year, all nine components of the CPAOI are up. Five components dropped compared with the previous quarter, but three rose slightly and one remained the same.

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. 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%]).

The survey has a ±3% margin of error.

CPA Outlook Index (CPAOI)

—Neil Amato (Neil.Amato@aicpa-cima.com) is a CGMA Magazine senior editor.