Economic Outlook Survey

Transcription

1 Economic Outlook Survey 4th quarter executive summary The CPA Outlook Index The CPA Outlook Index (CPAOI) is a broad-based indicator of the strength of U.S. 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 The CPA Outlook Index (CPAOI) dropped from 79 in the third quarter to 76 in the fourth quarter of The index component for optimism about the U.S. Economy dropped another 8 points from 79 to 71 after peaking at 86 in the first quarter of Organization optimism and expansion plans, along with revenue and profit and employment plans all declined slightly. IT spending, while easing a point. continues to be strong at 81. Employment declined 3 points and spending plans for other capital both declined 5 points. aicpa.org/ 2017 Association of International Certified Professional Accountants. All rights reserved. AICPA and American Institute of CPAs are trademarks of the American Institute of Certified Public Accountants and are registered in the United States, European Union and other countries. The design mark is a trademark of the Association of International Certified Professional Accountants

2 CPA Outlook Index The CPAOI is a robust measure of sentiment about the U.S. 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: U.S. Economy Optimism Organization Optimism Business Expansion Revenues Profits Employment IT Spending Other Capital Spending Training & Development Respondent optimism about the US economy Respondent optimism about prospects for their own organization Respondent expectations of whether their business will expand over the next 12 months Expectations for revenue over the next 12 months Expectations for profits over the next 12 months Expectations for headcount over the next 12 months Plans for IT spending over the next 12 months Plans for capital spending over the next 12 months 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. 4Q18 AICPA Business & Industry U.S. Economic Outlook Survey Executive Summary 2

3 Outlook for the U.S. Economy and Organizations Optimism for the U.S. Economy remains softens in Q4, declining another 12 points The percentage of CPA executives who are optimistic about the U.S. softened in the fourth quarter, declining to only 57% of respondents continuing to be optimistic, down from the record high of 79% seen in the seen in the first quarter of Optimists site the continued strength of many economic indicators. Trade policy, along with the deficit, interest rates and potential underlying issues such as corporate and personal debt levels were among the concerns. While tax cuts and deregulation were noted as continuing to have a favorable impact, political divisiveness continues to be a concern for many. Along that vein, the outcome of the mid-term elections, was cited by respondents on both sides of the optimism/pessimism spectrum. While generic concern was expressed about the potential for further deficit spending, a more balanced government was also cited as a potential positive. Organizational optimism continues to be strong, easing only a point from 69% to 68%. The percentage of companies with expansion plans also continues to be strong, but eased slightly to 67%, down three points from the second and third quarters and five points from the 72% high seen in the first quarter of Outlook for the U.S. Economy, Organizations & Expansion The increased concern about inflation seen in the first quarter remained constant again in the with 49% of respondents expressing worry about inflation. While early in 2016 we saw some level of concern about deflation, now only 3% of respondents have that concern. Labor costs continue to be the highest-ranking inflation concern for 41% of respondents, after easing to 36% in the third quarter. Raw materials cost concerns declined four points from 32% to 28%. Interest rates as the top concern eased a point from 20% to 19%. Energy cost concerns remained constant at 6%. 4Q18 AICPA Business & Industry U.S. Economic Outlook Survey Executive Summary 3

4 Key Performance Indicators Revenue and profit projections both show easing from first quarter highs Revenues are now expected to grow at a rate of 4.3%, easing from the 5.0% highs seen in both the first and third quarters of Profit expectations also gave back nearly a full point, now expected to increase at a rate of 3.4% down from the 4.3% rate expected in the third quarter. 10.0% Expectations for Revenue and Profits 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 Revenue 3.6% 3.6% 3.8% 4.4% 4.7% 3.6% 3.2% 3.3% 2.9% 1.7% 3.0% 2.9% 3.6% 4.3% 3.9% 4.3% 4.8% 5.0% 4.8% 5.0% 4.3% Profit 2.7% 2.9% 2.9% 3.6% 3.9% 2.8% 2.4% 2.6% 2.0% 0.7% 1.5% 2.3% 3.1% 3.5% 3.2% 3.5% 3.8% 4.4% 4.0% 4.3% 3.4% Spending plans also eased for most components. While technology optimism and hiring plans both rebounded in the fourth quarter, expected spending for IT eased another three tenths of a point from 3.6% to 3.3%. Spending plans for other capital declined five tenths from 3.5% to a 3.0% expected rate of increase. Training and development declined three tenths from 2.3% to only 2.0%. Marketing spending plans remained constant at 1.9%, while anticipated spending for R&D eased another three tenths to 1.7%. Salary and benefits cost expectations also eased two tenths from 2.8% to a 2.6% rate of increase. Expected healthcare cost increases which continue to be higher than other costs, eased another four tenths to 5.3%, the lowest expected rate of increase since the third quarter of Reflecting the level of concern about inflation, the expected increase in other input prices eased only slightly from the post-recession high of 3.2% seen in the second and third quarters of 2018, to 3.0% in the fourth. On the other side of the equation, the expected ability to increase prices charged also eased slightly from 2.5% to 2.2%. 4Q18 AICPA Business & Industry U.S. Economic Outlook Survey Executive Summary 4

5 Hiring Plans While some continue to have concerns, hiring plans continue to be strong In this quarter 50% of all companies say they have the appropriate number of employees, down from 46% in the third quarter. Those saying they have an excess number of employees remined constant at 6% overall. The number of companies with revenues in excess of $1 billion having too many employees decreased another point to 7%. This quarter, 42% now indicate that they currently have too few employees, down from 43% last quarter. Of these, the percentage of companies that are planning to hire dropped four points from 32% to 28%. The percentage of those who are reluctant to hire increased two points to 14%. Staffing Relative to Needs Employment plans by business size show a bit of a mixed picture: For employers with > $1 billion in revenues, 47% have the right number of employees and only 7% have an excess number; 44% have too few employees. Of those, now 17% are hesitant, while 27% are planning to hire. Of those in the $100 million to $1 billion category, 45% now say they have too few employees; only 17 % are hiring, down from 37% last quarter, while 28% are hesitant, up from only 9% in the third quarter. In the $10 - $100 million range, of the total of 41% with too few employees, only 30% have plans to hire, also down from 35% last quarter; 11% are hesitant. For employers with revenues < $10 million, again this quarter 53% say they have the right; only 4% have an excess of employees; of the 41% having too few employees, 25% are planning to hire; while16% are hesitant. 4Q18 AICPA Business & Industry U.S. Economic Outlook Survey Executive Summary 5

6 Industry, Region and Business Size Outlook Optimism and hiring eases in some sectors, continues strong in others Retail trade optimism rebounded to 69% in the fourth quarter, up from 61% seen in the second and third quarters. However, retail hiring plans declined sharply from expected rate of 2.8% in the third quarter to an expected rate of hiring for the coming twelve months of only 0.8%. Wholesale trade optimism remained constant at 63%. Manufacturing optimism also took a downturn, falling from a high of 78% in the third quarter to now only 67% of manufacturing respondents being optimistic about their company s prospects for the coming year. Manufacturing hiring plans also eased from an expected rate 3.6% in the third quarter to only 2.2% looking forward from the fourth quarter. On the other hand, construction optimism remained constant with the third quarter at 69% and expected hiring also remains strong at 3.6%, up a point from 3.5% in the third quarter. Real estate optimism also rebounded from 66% to 75%, although hiring is not expected to be strong. Expected Employment Change by Industry While IT spending is expected to ease slightly, optimism in the tech sector rebounded sharply to 82% after declining to only 60% optimistic in the third quarter. Tech hiring plans also rebounded to 4.1%, up from an expected rate of only 1.9% last quarter. Finance and Insurance optimism eased from 78% to 72%; professional services optimism also continues to be very strong, while easing slightly from 84% to 79% optimistic. Professional services hiring tops the chart at 4.9% up from only 2.7% last quarter. 4Q18 AICPA Business & Industry U.S. Economic Outlook Survey Executive Summary 6

7 Healthcare optimism eased only a point in the fourth quarter from 61% to 60%, after falling to only 44% optimistic in the second quarter. Planned healthcare hiring also improved four tenths from 1.9% in the third quarter to 2.3% in the fourth quarter. Optimism in the healthcare other sector (pharma, devices, etc.) eased another two points to 65% in the fourth quarter continuing its fall off from the 88% optimistic level seen in the second quarter. Industry, Region and Business Size Outlook (cont d) Regional optimism consistent with previous periods; expansion plans for companies in the $100 million to $1 billion sales level softening In terms of regional perspective, the Midwest and West regions remained constant with their third quarter levels of 73% and 65% optimistic, respectively. The South improved two points this quarter from 69% to 71% optimistic, while the Northeast gave back five points of its third quarter gain in optimism, falling from 69% to 64% optimistic. Expansion Plans by Business Size Expansion plans: Expectations for expansion by businesses with revenues < $10 million rose a point from 63% to 64%; Plans for companies in the $10 - $100 million category remained constant at 70%; Expansion plans for companies in the $100 million to $1 billion range fell significantly from 73% to only 62%; Those with revenues in excess of $1 billion eased another three points to 71%. 4Q18 AICPA Business & Industry U.S. Economic Outlook Survey Executive Summary 7

8 Top Challenges Availability of skilled personnel continues to be most challenging Availability of skilled personnel continues as the top challenge Employee and benefit costs moves up 2 places to second place Domestic competition maintains its 3 rd spot Regulatory requirements moves down to 4 th Staff turnover rose to 5 th place, moving up from 7 th in Q3 Domestic economic conditions moves up two spots to 6 th Materials/supplies/equipment costs drops 2 places to 7th spot Developing new products/services/markets also dropped 2 spots from Q3 to 8th Changing customer preferences came back into the top ten in the 9 th spot; down from Q1-Q2 showing in the 8 th spot Financing (access/cost of capital) maintained the 10 th spot Top Challenges Facing Organizations 1 4Q17 1Q18 2Q18 3Q18 4Q18 Availability of skilled personnel Availability of skilled personnel 2 Domestic competition Domestic competition 3 Regulatory requirements/changes 4 Employee and benefits costs Developing new products/services/markets Domestic economic conditions Changing customer preferences 8 Domestic political leadership 9 Staff Turnover 10 Materials/supplies/ equipment costs Availability of skilled personnel Regulatory requirements/changes Availability of skilled personnel Regulatory requirements/changes Availability of skilled personnel Employee and benefits costs Employee and benefits costs Employee and benefits costs Domestic competition Domestic competition Regulatory requirements/changes Developing new products/services/markets Domestic economic conditions Domestic competition Materials/supplies/ equipment costs Domestic economic conditions Employee and benefits costs Materials/supplies/ equipment costs Developing new products/services/markets Staff Turnover Staff Turnover Staff Turnover Changing customer preferences Financing (access/cost of capital) Materials/supplies/ equipment costs Changing customer preferences Developing new products/services/markets Domestic political leadership Domestic economic conditions Domestic political leadership Financing (access/cost of capital) Regulatory requirements/changes Staff Turnover Domestic economic conditions Materials/supplies/ equipment costs Developing new products/services/markets Changing customer preferences Financing (access/cost of capital) 4Q18 AICPA Business & Industry U.S. Economic Outlook Survey Executive Summary 8

9 Business Response to Labor Market Challenges Full range of options being employed to address tight labor market conditions With the current level of employment and the availability of skilled personnel continuing to top the list of challenges, we added two questions to the fourth quarter survey to assess the business response to this challenge. The first question With the tight labor market, what tactics are you planning to use, if any to help retention and recruitment over the next 12 months? Check all that apply. Garnered the following response: Business Response to Tight Labor Market Additional responses included: Growth and development opportunities Improved training Telecommuting and flex time Work remotely Good work environment Referral bonuses Retention Bonuses Enhancing incentive comp program Equity stakes Profit share program 4Q18 AICPA Business & Industry U.S. Economic Outlook Survey Executive Summary 9

10 The second question directly addressed employers plans for wage increases in the coming year. These results are summarized as follows: Plans for Wage Increases 4Q18 AICPA Business & Industry U.S. Economic Outlook Survey Executive Summary 10

11 Survey within the Survey Emerging technologies considered more of an opportunity than a threat Our survey within the survey this quarter addressed a number of questions about emerging technologies. With respect to the perspective of the impact that emerging technologies such as robotic process automation (RPA), artificial intelligence (AI) and blockchain on business, 43% indicated that it offers opportunities, while only 3% feel that it poses a disruptive threat to their business? Perspective on Emerging Technologies When asked how they expected these emerging technologies would impact their workforce needs over the next 3-5 years, 40% indicated they will need workers with different skillsets, 13% said they will require fewer workers, and 30% felt that their workforce needs will be unchanged. Impact on Workforce Needs 4Q18 AICPA Business & Industry U.S. Economic Outlook Survey Executive Summary 11

12 Recruiting focus While two-thirds (67%) of our respondents said that they have not changed the focus of their recruiting process in the context of emerging technologies, 9% indicated that their companies have begun to evaluate changes in their recruiting process but have not yet implemented them. A few responded that they have begun to emphasize digital proficiencies, critical thinking skills and communications skills in their hiring process. Robotic Process Automation (RPA) When asked what their organization s approach to Robotic Process Automation to handle analytical tasks normally performed in its business operations, nearly two-thirds (65%) said they are not taking any steps in this area right now. The balance have taken steps ranging from piloting solutions in their business, implementing RPA solutions to limited functions, or across multiple parts of their business, to looking at ways to fundamentally transforming their business, as indicated below. RPA Approach Areas of RPA business solutions For those who have begun to implement RPA solutions, or are in the process of doing so, following are the business areas that they are focusing on: Operational accounting (A/R, A/P, etc.) 26% General accounting (JEs, reconciliations, etc.) 18% Manufacturing applications 15% Inventory and supply chain operations 15% Customer-facing interactions 13% Other business processes 11% 4Q18 AICPA Business & Industry U.S. Economic Outlook Survey Executive Summary 12

13 Artificial Intelligence Solutions (AI) When asked about the implementation of AI solutions, slightly more than half indicated that their organization had no AI solutions being implemented, or they were not sure. For those who have started down the AI path, 23% have implemented, or are in the process of implementing Business Intelligence (BI) solutions such as data analysis and predictive analytics. Other AI applications included those in the customer service arena (9%), internet of things solutions (8%), and sales enablement (4%) Blockchain On the blockchain front, only 2% of our respondents indicated they are piloting, or have plans to launch projects in the next twelve months; another 7% are studying potential uses; the majority (72%) are not focusing on blockchain technology yet. For those who are exploring blockchain solutions, the use areas they indicated include the following: Authentication Contract/proposal management Contracts administration Crypto-collectibles Distributed ledger for application shared among financial institutions Sourcing Tracking of inventory within India One respondent added that we have looked at applications and use cases but will be fast followers not leaders. 4Q18 AICPA Business & Industry U.S. Economic Outlook Survey Executive Summary 13

14 Survey Background The survey was conducted of AICPA Business & Industry members between November 7-28, 2018 and had 938 qualified respondents. CFOs comprised 40% of the respondents, 20% were Controllers, 12% were Presidents, CEOs, or other C-suite titles; 7% were VP/SVPs, 17% were accounting, audit, tax, technology directors or managers; the remainder were other executives. Sixty-six percent of respondents came from privately owned entities, 16% from publicly listed companies, and 14% from not-for-profits. Fifteen percent came from organizations with annual revenues of $1 billion or more, 21% from organizations with $100 million to under $1 billion in annual revenues, 47% from organizations with $10 million to $100 million and 18% from organizations with under $10 million in revenues. aicpa.org/ 2017 Association of International Certified Professional Accountants. All rights reserved. AICPA and American Institute of CPAs are trademarks of the American Institute of Certified Public Accountants and are registered in the United States, European Union and other countries. The design mark is a trademark of the Association of International Certified Professional Accountants Q18 AICPA Business & Industry U.S. Economic Outlook Survey Executive Summary 14