core sector communique

CPA Outlook Index Declines in Second Quarter as Economic Optimism Wanes, Job Growth Stalls: AICPA Survey

Rising Inflation Raises Cost Concerns for Companies

New York, N.Y. (June 2, 2011) — According to the latest AICPA Economic Outlook Survey, chief financial officers, controllers and CPAs in executive and senior management accounting roles are far less optimistic now about the direction of the U.S. economy than they were in the first quarter of 2011.

The CPA Outlook Index, a broad-based composite index that captures the expectations of CPA financial executives and management accountants, declined three points to 66 this quarter, from 69 in the prior period.

“The flush of optimism we experienced earlier this year has given way to more moderate expectations for the U.S. economy,” said Carol Scott, AICPA vice president for business, industry and government. “While the CPA Outlook Index is still positive relative to the dark days of the recession, our members are concerned about rising energy costs and inflation, health care costs and continuing weakness in demand.”

The pullback in optimism follows an upbeat assessment in the prior quarter and signals the two-year-old U.S. economic recovery has lost momentum, Scott said. The survey shows that expectations for corporate expansion and hiring have moderated and the outlook for revenues and profits declined. Concerns about inflation continued to rise, driven by higher energy costs. The outlook for capital spending remained largely flat with information technology the only sector enjoying improvement.

The outlook for hiring has flattened, according to the survey. Only 12 percent of companies have current hiring plans, roughly even with 13 percent three months earlier. Twenty-one percent said they have too few employees but are hesitant to hire new workers. Technology sector employers expect to increase hiring while construction and health care providers expect to decrease staffing. A majority do not expect to see a return to pre-recession employment levels anytime soon.

According to Stuart Benton, CPA, executive vice president and CFO for Bradford Soap Works Inc., the world’s largest specialty bar soap manufacturer, “The survey highlights two key themes for companies right now -- rising health care costs and inflation.”

“For the last five quarters, employee health care costs ranked as a top challenge for companies. As costs go up year after year companies are being forced on to a ledge and are considering a range of cost containment strategies including requiring workers to pay more for benefits,” Benton said.

“The other data point that struck me in the survey is that a majority of CFOs share my concern about inflationary effects of raw material costs. Rising material costs and energy prices force companies to make decisions about whether to pass that increase in cost on to consumers or whether to absorb the costs to stay competitive. Either way that’s not good and suggests inflation is starting to be a drag on the economy,” Benton said.

The CPA Outlook Index is a composite of nine survey measures at equal weights. A reading above 50 indicates a generally positive outlook with increasing activity. A reading below 50 indicates a generally negative outlook with decreasing activity.

Only 33 percent of CPAs serving in executive positions expressed optimism about the U.S. economy in the second quarter, down 15 percentage points from 48 percent who were optimistic in the first quarter. Pessimism increased to 27 percent, up 9 percentage points from 18 percent in the prior period, reflecting an upswing in negative mood.

Concerns about inflation continue to mount among CPA financial executives and management accountants with 61 percent citing inflation as a concern over the next six months, up 6 percentage points from 55 percent of respondents concerned about inflation in the prior quarter. Thirty-two percent of respondents indicated concern about rising material costs, while 24 percent are concerned with increasing energy prices.

Survey respondents say they continue to struggle with rising health care costs and many employers are planning to require employees to contribute more to cover the cost of health care benefits in the coming year. Forty percent plan to increase copays, coinsurance and/or deductibles. Thirty-one percent plan to modify/restructure offerings. Only 24 percent plan to absorb all cost increases.

Methodology
The second quarter AICPA Business and Industry Economic Outlook Survey was conducted May 11-26 and included 1,093 qualified responses from CPAs who hold leadership positions, such as chief financial officers or controllers in their companies. The overall margin of error is less than plus-or-minus 3 percentage points.

About AICPA

The American Institute of Certified Public Accountants , founded in 1887, 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, DC, Durham, N.C., Ewing, N.J. and Lewisville, Texas.