AICPA Business & Industry U.S. Economic Outlook Survey 4Q 2015

Transcription

1 AICPA Business & Industry U.S. Economic Outlook Survey 4Q 2015

2 The CPA Outlook Index The CPA Outlook Index (CPAOI) is a broad-based indicator of the strength of US business activity and economic direction that reflects the views of CPAs who are AICPA members in Business & Industry holding executive positions in both public and privately-owned organizations of all sizes, and across a broad spectrum of industries. CPA Outlook Index 02 The CPA Outlook Index (CPAOI) decreased 2 points in the fourth quarter of 2015 to 69 based on declines in the index components related to the U.S. economy, organizational optimism and expansion, and revenue and profit expectations. Employment continues be the softest organizational index component at 67. However, it did improve a point in the fourth quarter. While revenue and profit expectations both declined in the fourth quarter after showing improvement in the fourth quarter of 2015, spending projections were essentially constant. Component 4Q14 1Q15 2Q15 3Q15 4Q15 Q to Q Y to Y U.S. Economic Optimism Organization Optimism Expansion Plans Revenue Profits Employment IT Spending Other Capital Spending Training & Development Total CPAOI

3 The CPA Outlook Index The CPAOI is a robust measure of sentiment about the US economy that is supported by the unique insight and knowledge that CEOs, CFOs, Controllers, and other CPA executives have about the prospects for their own organizations, their expectations for revenues and profits, and their plans for spending and employment. The CPAOI is a broad-based composite index that captures the expectations of our members and their plans for a breadth of indicators of economic activity. It is a composite of the following nine measures at equal weights: US Economy Optimism - Respondent optimism about the US economy. Organization Optimism - Respondent optimism about prospects for their own organization. Business Expansion - Respondent expectations of whether their business will expand over the next 12 months. Revenues - Expectations for revenue over the next 12 months. Profits - Expectations for profits over the next 12 months. Employment - Expectations for headcount over the next 12 months. IT Spending - Plans for IT spending over the next 12 months. Other Capital Spending - Plans for capital spending over the next 12 months. Training & Development - Plans for spending on employee training and development over the next 12 months. Each individual component indicator 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. As an example, if 60 percent of respondents indicate an optimistic or very optimistic view, and 20 percent express a neutral view, the calculation of the component indicator would be 70 [60% +.5 x 20%]. 3

4 Outlook for the US Economy and Organizations Optimism about the economy, organization and expansion plans continue to ease The number of CPA executives who are optimistic about the economy declined to 45% in the fourth quarter of 2015, falling another 3 points after dropping below the 50% mark in the fourth quarter of 2015 for the first time since the first quarter of Organizational optimism and expansion plans also both declined in the fourth quarter. Only 53% of respondents continued to be optimistic about the prospects for their own organization, down six points from the fourth quarter; only 57% continue to have expansion plans, an easing of 3 points. Outlook for the US Economy, Organizations & Expansion Concerns about inflation continue to be relatively low. In the fourth quarter, 23% of CPA respondents are concerned about the prospects for inflation over the next six months, two points lower than the 25% in the third quarter of 2015; only 11% expressed concerned about deflation. Labor costs continue to be the most pressing issue for 37% of respondents. Raw materials costs followed as the top concern for 23%. Interest rates are the top worry for 22%, followed by energy costs, which continue as a concern at 12%. 4

5 Key Performance Indicators Outlooks for revenue and profits both continued further declines from Q highs Expectations for increased revenues eased further from 3.3% in the third quarter to 2.9% in the fourth quarter of 2015, down from the high of 4.7 % we saw in the fourth quarter of Expectations for profits also dropped to 2.0%, down from 2.6% in the third quarter of Expectations for Revenue and Profits While respondents other input prices decreased another 1 tenth to 2.1%, the expected ability to increase prices charged also eased a point from 1.6% to 1.5% in the fourth quarter of Expectations for healthcare cost increases continue to be higher than other costs but declined to 5.4% in the fourth quarter, which is the lowest expected increased dating back to the third quarter of IT continues to be the strongest category of planned spending over the upcoming twelve months, but eased another two tenths from the third quarter 2015 projection to a 2.8% increase. Other capital spending plans also declined a tenth to a projected 2.4% increase. Anticipated spending for training remained unchanged at a 1.4% rate of increase. 5

6 Hiring Plans Concern about hiring plans eases slightly Slightly more than half of all companies (53%) continue to say they have the right number of employees which is up only a point from 52% in the fourth quarter. The number of companies that say they have too many employees increased two points to 10% in the fourth quarter. The number of companies that say they have too few employees but are hesitating to hire decreased three points from 20% to 17% in the fourth quarter. The number of companies with too few employees who are planning to hire remained constant at 18%. Staffing Relative to Needs 6

7 Industry, Region and Business Size Outlook Optimism down across all sectors; expansion plans soften most for small companies After making a leap to 85% in the second quarter, retail trade optimism fell to 65% in the third quarter and deteriorated further in the fourth quarter to only 28% of retail respondents now being optimistic about the prospects for their companies. Wholesale trade also declined from 54% in the third quarter to 23% in the fourth quarter. The manufacturing sector also fell another twelve points in the fourth quarter from 53% to 41% who remain optimistic. Manufacturing hiring projections also fell sharply in the fourth quarter from a projection of a 3.8% expected increase to only 0.9% for the coming twelve months. While construction optimism also fell twelve points from 64% to 51% optimistic in the fourth quarter, the expected headcount increase in construction rebounded in the fourth quarter to 2.5%, after falling back to only 1.2% in the third quarter. The professional services and technology sectors also eased off somewhat in optimism, but employment is expected to be stronger in both sectors than was seen in the third quarter. While the banking sector is also expecting a headcount recovery now projecting a 1.4% increase versus a 0.9% decline projected in the third quarter, the mining and natural resources sector is now projecting a 2.6% decline, rather than the 0.9% increase expected at the third quarter 2015 mark. Expected Employment Change by Industry In terms of regional perspective, the Northeast, now at 58%, replaces the West as most optimistic, Optimism in the South fell below the 50% mark to 48%. There is also less optimism in the Midwest and West which are both now at 55%. 7

8 Industry, Region and Business Size Outlook (cont d) After showing better strength in the third quarter, expansion plans among companies with revenues < $10 million fell from 61% to only 52% in the fourth quarter. Expansion plans for companies in the $10-$100 million and plans and those in the $100 million to <$1 billion range also eased in the fourth quarter to 57%, while the percentage of companies with revenues > $1 billion recovered another 3 points in the fourth quarter, improving from 56% to 59%. Expansion Plans by Business Size 8

9 Top Challenges Domestic economic conditions and competition present more pressing concern Regulatory requirements/changes maintains its place at the top of the chart. While employee and benefits costs fell from the #2 slot to #6 and the availability of skilled personnel eased from #3 to #4, concern about domestic economic conditions moved from the #4 slot to #2, and domestic competition also jumped from #5 to #3. Global economic conditions is once again a greater concern, moving from the 10th slot in the third quarter of 2013 to #7, after falling out of the top ten in the fourth quarter of Concern about stagnant/declining markets also increased, moving from #6 to #5, and financing (access, cost of capital) also returned to the top ten, and is now in the #8 most pressing challenge facing organizations. Rounding out the list, developing new products/services/markets eased from #7 to #9 and domestic political leadership also eased from #9 to #10. Top Challenges Facing Organizations Survey Background The survey was conducted of AICPA Business & Industry members between November, 3-23, 2015 and had 852 qualified respondents. CFOs comprised 34% of the respondents, 23% were Controllers, 7% were CEOs or Presidents, 6% were VPs, 2% were COOs; the remainder were Directors or other executives. Sixty-four percent of respondents came from privately owned entities, 19% from publicly listed companies, 12% from not-forprofits. Twenty percent came from organizations with annual revenues of $1 billion or more, 22% from organizations with $100 million to under $1 billion in annual revenues, 41% from organizations with $10 million to $100 million and 18% from organizations with under $10 million in revenues (numbers may add to more than 100 due to rounding). 9