Optimism about the US economy dropped amongst finance decision-makers in a quarterly survey, and the impact of tariffs was one reason for the decline — sentiment held by a majority of respondents before new tariffs were implemented this week.
Responses for the survey, released Thursday by AICPA & CIMA, were gathered in February. A White House fact sheet on Tuesday detailed the start of tariffs on imports from Canada and Mexico, and the administration of US President Donald Trump had previously announced tariffs or signaled their use.
Less than half of respondents (47%) are optimistic about the domestic economy, down from 67% who were optimistic just after the November election. Half are optimistic about their own organisation’s prospects for the coming 12 months, down from 53% a quarter ago. Regarding the global economy, the percentage of optimists dropped from 41% to 29%.
“There are a lot of warning signs right now for business executives, particularly around inflation, payroll costs, and consumer confidence, with tariffs adding another layer of uncertainty,” said Tom Hood, CPA/CITP, CGMA, AICPA & CIMA’s executive vice president–Business Growth & Engagement. “That said, it’s important to recognise that economic optimism remains higher than at any point since mid-2021, aside from last quarter’s notable increase. Additionally, expansion plans have held steady from the previous quarter.”
The survey gauges sentiment of finance decision-makers in business and industry — primarily CFOs, CEOs, and controllers. This quarter’s data is based on 305 responses.
Another key takeaway from the survey: Organisation size influences expansion plans. Fifty-seven per cent expect their business to expand this year. However, when broken down by business size, not all leaders share the rosy outlook on expansion.
More than 80% of businesses with $1 billion or more in annual revenues are likely to expand in the coming 12 months, up from 65% the previous quarter. Fifty-seven per cent of finance leaders at companies with revenues between $100 million and $1 billion plan to expand, up 7 points from last quarter.
Businesses on the lower end of the revenue scale had declines in expected expansion compared with the previous quarter: from 61% to 52% for revenues between $10 million and $100 million and from 53% to 48% for those below $10 million.
Views on hiring have remained steady across businesses of all sizes. Thirty-nine per cent of organisations need to recruit, up 1 point from last quarter. This includes leaders who have too few employees but are hesitant to hire (19%) and those who have immediate hiring plans (20%).
Just more than half (51%) of leaders believe they have the right number of employees, down 2 percentage points from the previous quarter.
The potential impact of tariffs
Fifty-nine per cent of respondents said tariffs were likely to have a negative impact on their businesses; 14% said the impact would be positive; and 3% were unsure. Others said the question did not apply to their businesses or that there would be some positive and negative effects.
Optimists about their business overall cite general economic conditions and a pro-business administration as reasons for their sentiment. Pessimists list tariffs; lingering high interest rates and inflation also remain concerns.
Revenue forecasts decreased slightly to 3% from Q4’s rebound of 3.3%. Profit projections followed suit and dropped from last quarter’s 2.2% to a 1.7% projected increase for the coming 12 months.
Priorities have shifted, but challenges have not
Inflation has been a nagging challenge for over four years, and it is the top challenge for the second consecutive quarter and fourth time in the past five quarters.
Employee and benefits costs and availability of skilled personnel remained second and third, respectively, on the list of challenges.
— Jamie J. Roessner is a senior content writer at AICPA & CIMA, together as the Association of International Certified Professional Accountants. To comment on this article or to suggest an idea for another article, contact Neil Amato at Neil.Amato@aicpa-cima.com.