UNC Kenan-Flagler Business School


Modest gain in optimism as CPA executives foresee slow U.S. recovery


After a dramatic drop last quarter, CPA executives regained modest optimism in the past three months about prospects for the U.S. economy, but they believe the recovery will be slow and are cautious about plans for expansion and hiring, according to the latest AICPA/UNC Quarterly Economic Outlook Survey.

Twenty-eight percent of CPAs serving in executive positions expressed optimism about the U.S. economy in the fourth quarter, up 7 percentage points from 21 percent who were optimistic in the third quarter. Pessimists were 29 percent, a decline of 11 percentage points from the prior quarter. Most CPA executives, 43 percent, were neutral on the economy. A majority of 61 percent do not expect business conditions to return to prerecession levels until after 2012.

The survey is conducted quarterly by the American Institute of Certified Public Accountants (AICPA) and the University of North Carolina’s Kenan-Flagler Business School. It measures the outlook for both the economy and the organizations of CPA decision makers who are CFOs, CEOs and controllers who are AICPA members working in business and industry.

“We see a bounce in optimism tempered by caution,” said Carol Scott, AICPA vice president for business, industry and government. “Corporate expectations for revenue and profit are improving with most expecting to make more money next year. That isn’t yet translating into strong hiring growth which would be key to any economic recovery. We do see signs of hope in that, while some companies are still struggling with cash, those with strong capital are planning to deploy funds for capital investment and expansion in the next six months.”

Measures of optimism versus pessimism registered a combined 18 percentage-point swing toward a positive outlook for the U.S. economy, partially recovering from a 34-point plunge to the negative in the prior quarter when pessimists outnumbered optimists by a two-to-one margin. Fifty-one percent of survey respondents are now optimistic about the prospects for their own companies. Despite that improvement, a large 74 percent majority expect their business to expand only a little or stay the same over the next 12 months.

“The good news is that corporate expansion expectations continue to gradually improve and are at levels seen shortly before the recession, with improvements across most industries and geographic regions,” said Mark Lang Thomas W. Hudson, Jr./ Deloitte and Touche Distinguished Professor of Accounting at UNC Kenan-Flagler.

“The bad news is that growth remains slow and companies are hesitant to substantially increase spending and hiring. It appears that we are caught in a cycle of slow growth leading to slow corporate spending, which further limits growth, and it is unclear how we will break out of the cycle.”

Key messages from the survey

  • Expectations for hiring remained flat although there has been a slight uptick in hiring plans from a year ago. Thirty-four percent of respondents (the same as last quarter) said their companies would increase their headcounts over the next 12 months, while 48 percent plan to keep employees the same, and 19 percent said they expect to reduce staff.
  • Overall expectations for growth in revenue and profits, prices, costs and spending were stable from last quarter with a slight majority of respondents continuing to expect increases across most categories. However when compared with a year ago, significant improvement can be observed in the percent of respondents expecting an increase in revenues.
  • Several new questions in the survey focused on corporate cash and liquidity. Results suggest there is not a large amount of cash “sitting on the sidelines” as recent commentary has suggested.
    • 44 percent said their non-cyclical cash position was the same now as six months ago.
    • 42 percent said their organization’s liquidity position was about right.
    • Only 7 percent have seen large improvements in cash positions.
    • 47 percent plan to raise capital over the next six months.
    • Respondents from the technology, professional services, and retail trade and manufacturing industries were the most optimistic this quarter at 69 percent for technology, 60 percent for professional services and 57 percent for manufacturing and retail trade who were optimistic/very optimistic about the outlook for their organization. Respondents from construction, real estate and healthcare providers were the least optimistic at 35 percent, 41 percent and 34 percent respectively.
    • Customer demand, employee health care costs, regulatory requirements and access to capital/cost of capital remain the top challenges that businesses face today. Interestingly, however, availability of skilled personnel is increasingly a concern.
    • Inflation is again a concern for 34 percent of businesses (up from 24 percent in the prior quarter), while fears of deflation waned to 14 percent. Most, 41 percent, said neither was a concern.
    • Regional differences in economic expectations appeared in the survey with New England, Mid-Atlantic and Midwest appearing more optimistic than the South, Southwest and West Coast.

    The AICPA/UNC Kenan-Flagler Economic Outlook Survey includes two indices, the Corporate Expansion Index (CEI) and Corporate Optimism Index (COI), that consolidate expectation and optimism trends for the economy and for respondents’ own organizations. Index values above 0.50 are positive while ratings below 0.50 are negative. Both indices were up this quarter to about 0.60, a level comparable to January 2008.

    The fourth quarter survey was conducted via an online questionnaire Nov. 9-30 and included 1,443 qualified responses from CPAs who hold leadership positions, such as chief financial officers or controllers in their companies. The overall margin of error was less than plus-or-minus 3 percentage points. Full poll results are at: www.aicpa.org/InterestAreas/BusinessIndustryAndGovernment/NewsAndPublications/Pages/EconomicOutlookSurveys.aspx.

    UNC Kenan-Flagler  is known for innovative research and extraordinary learning experiences. Its commitment to developing socially responsible, results driven leaders distinguishes its programs, which educate people at every stage of their careers. UNC Kenan-Flagler prepares business leaders to manage successfully in the global business environment through its Master of Accounting, MBA, MBA for Executives, MBA@UNC, undergraduate BSBA, PhD and Executive Development programs. The Frank Hawkins Kenan Institute of Private Enterprise helps business and government tackle problems with impact on society.

    The AICPA (www.aicpa.org) is the world’s largest association representing the accounting profession, with nearly 370,000 members in 128 countries. AICPA members represent many areas of practice, including business and industry, public practice, government, education, and consulting; membership is also available to accounting students and CPA candidates. The AICPA sets ethical standards for the profession and U.S. auditing standards for audits of private companies, non-profit organizations, federal, state and local governments. It develops and grades the Uniform CPA Examination. The AICPA maintains offices in New York, Washington, D.C., Durham, N.C., Ewing, N.J. and Lewisville, Texas.