CPAs expressed their highest level of optimism about the U.S. economy since the third quarter of 2007, according to the latest AICPA/UNC Quarterly Economic Outlook Survey. This upbeat assessment follows a modest outlook last quarter. In addition, there was a slight improvement in expectations for hiring and an uptick in plans for capital spending for IT and other areas over the next 12 months. On the broader level, there was concern about inflation.
The AICPA/UNC Quarterly Economic Outlook 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.
This quarter the survey introduces a new index. The CPA Outlook Index (CPAOI) is a broad-based composite index that captures the expectations of AICPA members and their plans for a breadth of indicators of economic activity. It is a composite of nine survey measures at equal weights. The CPAOI increased by .07 this quarter to reach .69. A reading above .5 indicates a generally positive outlook with increasing activity. A reading below .5 indicates a generally negative outlook with decreasing activity.
“We see a substantial bounce in optimism about the economy for the first time in nearly three years,” said Carol Scott, AICPA vice president for business, industry and government. “The new composite index shows positive movements across the board. However, this seems to be tempered by concerns about inflation.”
Forty eight percent of CPAs serving in executive positions expressed optimism about the U.S. economy in the first quarter, up 20 percentage points from 28 percent who were optimistic in the fourth quarter. Companies with current hiring plans rose by three percentage points to 13 percent. All industries expect to increase hiring in 2011, with the average expected increase in number of employees rising to 1.5 percent, compared to .6 percent in Q4 2010.
Fifty-seven percent of survey respondents are now optimistic or very optimistic about the prospects for their own companies. Sixty six percent of respondents expect their businesses to expand during the next 12 months. The technology sector is leading the way with an expected headcount increase in 2011 of 4.4 percent.
“The most striking feature is the consistency of optimism across all nine components of the Outlook Index,” said Mark Lang, Thomas W. Hudson, Jr./Deloitte and Touche L.L.P. Distinguished Professor of Accounting at UNC Kenan-Flagler. “Respondents are optimistic about their own organizations as well as the economy as a whole and, most importantly, their optimism is translating into planned spending and employment increases. It appears that the recovery continues to accelerate.”
Up 21 percentage points since from the last quarter, 55 percent of respondents expressed concern about inflation. Thirty six percent of respondents indicated concern about rising material costs, while 18 percent are concerned with an increase to energy prices. However, 47 percent do not expect to pass increased costs onto customers during the next quarter.
Key survey findings include:
- There has been a very slight change in reported hiring plans. Thirteen percent of respondents, up from 10 percent last quarter and 8 percent a year ago, now indicate that they don’t have enough employees and plan to hire. The number that don’t have enough and are reluctant to hire dropped a corresponding 3 percent from 22 percent in Q4 2010 to 19 percent this quarter
- Hiring plans are improving slightly. However, expectations for employment returning to pre-recession levels for many pushed out into 2012.
- Only 7 percent expect to return to pre-recession levels in the next 12 months.
- 23 percent expect that to happen in 12–24 months.
- 28 percent do not expect to return to pre-recession levels in the foreseeable future.
- 7 percent have already returned to prerecession levels and 31 percent indicate that they did not decline
- Cash and liquidity positions have changed very little. Almost half (46 percent) of respondents are where they want to be with 30 percent indicating they have too much and 24 percent indicating too little. Only 11 percent have plans to deploy
- Customer demand, employee healthcare costs and regulatory requirements remain the top challenges with economic and Political Instability debuting at number four
- The number of companies planning increased IT spending rose from 47 percent to 52 percent, and the number planning increases in other capital spending rose from 42 percent to 48 percent. The average expected increase in IT and Other Capital Spending rose to 2.3 percent and 2.1 percent respectively.
- 45 percent of respondents plan to take some advantage of the first-year tax deduction for eligible equipment in 2011, but only 12 percent expect to be able to take advantage of the full deduction. Most respondents (60 percent) believe that reducing the regulatory burden would have the most impact on job creation.
- The first quarter AICPA-UNC Business and Industry Economic Outlook Survey was conducted via an online questionnaire Feb. 9-24 and included 1,168 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.
The University of North Carolina at Chapel Hill's Kenan-Flagler Business School 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, Ph.D. and Executive Development programs. The Frank Hawkins Kenan Institute of Private Enterprise helps business and government tackle problems with impact on society.
The American Institute of Certified Public Accountants (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.
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