64 Percent of AICPA Survey Respondents Favor Extension of Tax Cuts

The CPA Outlook Index (CPAOI), introduced in Q1 2011, 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.

The CPA Outlook Index (CPAOI) continuted its upward trend this quarter increasing another 5 points following on a 6 point increase in 4Q 2011. Again this quarter the largest contributor to the increase was the outlook for the US Economy which was up another 21 points this quarter following a 15 point increase last quarter. Tempering the positive message somewhat is the fact that the index is still below the level of 1Q 2011.

 

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 12months.

• 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 12months.

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%].

Outlook for the US Economy and Organizations

Outlook for US Economy and Organizations improves again; remains below 1Q 2011

For the second consecutive quarter, the percentage of CPA executives identifying themselves as optimistic or very optimistic about the US Economy more than doubled again this quarter going from 19% to 43% after going from 9% to 19% last quarter. The percentage of pessimists dropped from 40% to 22%. However these numbers are still below 1Q 2011 when 48% were optimistic and only 18% were pessimistic. Pessimists most often cited concerns about the government, regulations and the political environment in Washington, the size of the US debt & budget deficit and continued unemployment as the reasons for their pessimism. Optimists were most frequently mentioned reduced unemployment and increased optimism about the housing market and other signs of economic growth as reasons for feeling more optimistic.

CPAs' outlooks concerning their own organizations improved by 10% this quarter with over half, 55%, considering themselves optimistic or very optimistic. This is still slightly lower (but not significantly so) than a year ago when 57% were optimistic. The increase in optimism was matched by a 4 point decrease in pessimism and optimists now outnumber pessimists by slightly more than 4 to 1 margin (55% to 12%). Expectations for expansion increased by 2%, with 61% of CPA executives now expecting their organization to expand at least somewhat in the next 12 months. This is down from 1Q 2011 when 66% of respondents expected expansion and statistically unchanged from 4Q 2011 when 59% were expecting to expand.

 

Outlook for the US Economy, Organizations & Expansion

 

 

 

Key Performance Indicators

Expectations for revenue, profits and staffing improve while spending plans stabilize

Expectations for revenue, profit and employment growth continued their upward trajectory this quarter with all three improving from 4Q 2011. While expectations improved Q to Q, expectations are essentially unchanged on a Y to Y basis. Respondents expect revenue to grow an average of 3.5% in the next 12 months, up from 2.8% in 4Q 2011. Profits are expected to increase 2.9%, up from 2.4% last quarter. The average increase in staffing levels over the next 12 months is still expected to be small with an increase of 1.5% expected, up from 1.2% in 4Q 2011.

 

Expectations for Revenue, Profits and Staffing

 

 

 

After rebounding last quarter expectations for spending leveled off this quarter, increasing insignificantly from 4Q 2011, but remaining above 1Q 2011 levels. CPA respondents expect the greatest increase in IT spending which is now expected to increase by 2.8%, virtually unchanged from 2.7% last quarter, and up from the 2.3% increase expected in 1Q 2011. Other capital expenditures and spending for training and staff development are also expected to increase by 2.1% and 1.4% respectively, not significantly different from the 2.2% and 1.2% expected in 4Q 2011. Expectations for spending on marketing were stable at 1.8%, while expectations for R&D expenditures did improve slightly from 0.9% to 1.2%.

Hiring Plans

Organizations that need employees are beginning to hire but the total number needing employees is stable

Expectations for hiring were positive for the short-term but more mixed for the long-term. The percentage of CPA executives who said that their organizations need employees and plan to hire increased by 4% from 10% to 14% this quarter. This was offset by a 5% drop (to 20%) in the percentage of respondents who said that their organizations have too few employees but are hesitant to hire. The total percentage of organizations needing employees remained stable at 34%. The number of organizations indicating they had the right number of employees was also stable at 57% while the number indicating they had an excess number dropped 2% to 7%. Two percent of respondents answered "other" with a number of these commenting that their staffing situation was mixed -- excess employees in some areas while other areas required staff.

 

Staffing Relative to Needs

 

 

 

Liquidity positions remain relatively stable, continued reluctance to deploy excess

Respondents remain reluctant to deploy capital. The majority of the respondents' organizations continue to have at least as much cash as they need with 34% (down from 37% last quarter) having more than they need and 44% having about the right amount. Only 14%, the same as last quarter, plan to deploy excess liquidity, while 20% (down from 23% last quarter) continue to be reluctant to deploy their excess. The percent of CPA decision-makers say their organizations need capital increased slightly from 19% to 22% this quarter. The percentage of companies indicating the had less liquidity than the needed, but that either availability of pricing was a barrier to obtaining credit increased to 13% this quarter, up from 10% in Q4 2011.

Overall the majority of respondents (56%) believed that obtaining credit would not be more or less difficult than in previous quarters. About 12% felt it would be more difficult while 9% felt it would be less difficult. Forty-four percent of respondents had plans to raise capital, with 18% planning to use short-term borrowings, 11% planning to use long-term debt and 9% planning to use private equity/debt.

Top Challenges

Top challenges remain unchanged

The Top Three challenges remained the same as in 4Q 2011 with Domestic economic conditions topping the list followed by Regulatory requirements/changes and Employee and benefits costs. Stagnant/declining markets moved from 4^th to 6^th with Domestic competition and Domestic political leadership each moving up one spot. This quarter was the second quarter to use the new list of potential challenges.

 

 

Optimism improves across most industries; Regional expectations vary

Respondents from all industries other than healthcare providers and retail trade were more optimistic about their own organizations than in 4Q 2011. Healthcare other saw the largest increase in optimism and is the most optimistic this quarter. It is followed by the technology, finance and insurance, and manufacturing industries. Healthcare providers replace real estate as the most pessimistic respondents. Technology, healthcare other and manufacturing expect to do the most hiring and no industry plans to reduce staffing.

 

Expected Employment Change by Industry

 

 

 

While large businesses remain more likely to expand than small businesses, expectations for expansion for businesses with over $1 billion in revenue dropped from 69% to 65%. At the same time the percent of businesses in the $100 million to < $1 billion range that expect to expand increased from 62% to 66% and percent of businesses in the $10 million to <$100 million range that expect to expand increased from 56% to 60%. The percent of respondents in the smallest category (<$10 million) that expect expansion remained stable at 55%.

Monetary and Fiscal Policy

Respondents don't support quantitative easing

This quarter's survey within a survey focused on monetary and fiscal policy. When asked to whether the Fed should initiate another round of quantitative easing, 70% said "No". Only 11% support another round of quantitative easing and 18% are unsure.

 

More Quantitative Easing?

 

 

 

Survey Background

The survey was conducted of AICPA Business & Industry members between February 15, 2012 and March 1, 2012 and had 1358 qualified respondents. Forty-nine percent of respondents were CFOs, 21% were Controllers, 11% were CEOs or Presidents, 8% were VPs, 2% were CAOs, CAEs, CIOs, 3% were COOs and the remainder were Directors or Other. Sixty-nine percent of respondents came from privately owned entities, 15% from publicly listed companies, 14% from not-for-profits and 1% from other. Eleven 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, 45% from organizations with $10 million to $100 million and 22% from organizations with under $10 million in revenues.