Business Execs Predict Business Expansion

Buoyed by higher profit growth expectations, business executives are predicting an increase in corporate expansion for the coming year, according to the third quarter AICPA Economic Outlook Survey, which polls chief executive officers, chief financial officers, controllers and other certified public accountants in U.S. companies who hold executive and senior management accounting roles.

Professionals taking the survey now expect profits to rise 2.6 percent over the next 12 months, or more than three times the rate (0.7 percent) projected at the start of the year. Some 70 percent of business executives also say they expect revenue to increase in the coming year, two percentage points higher than last quarter and seven percentage points more than in the first quarter.

Some 62 percent of executives expect their businesses to expand in the next 12 months, the highest rate since the first quarter of 2015. The largest companies—those with more than a billion dollars in revenue—reported the biggest shift in sentiment, with two-thirds now saying they expect to grow, up from 50 percent last quarter.

Those companies, however, are least likely to say they need new employees and are looking to hire immediately (10 percent versus 21 percent for all companies).

“We’re seeing some stability in optimism about the U.S. economy after a few volatile quarters,” said Arleen R. Thomas, CPA, CGMA, the AICPA’s senior vice president of management accounting and global markets. “The response by businesses has been variable, though, depending on the size of the company and the industry it’s in. Some are ready to add new staff and make other investments, while others are taking a more cautious stance.”

The AICPA survey is a forward-looking indicator that tracks hiring and business-related expectations for the next 12 months. As a point of comparison, the U.S. Department of Labor’s August employment report, scheduled to be released tomorrow, looks back on the previous month’s hiring trends.

The CPA Outlook Index—a comprehensive gauge of executive sentiment within the AICPA survey— rose one point in the third quarter to 69, but remains well below a post-recession high of 78 set in the fourth quarter of 2014. The index is a composite of nine, equally weighted survey measures set on a scale of 0 to 100, with 50 considered neutral and greater numbers signifying positive sentiment.

Other key findings of the survey:

The presidential election is having some impact on business planning, budgeting and forecasting for the next fiscal year. Some 70 percent of business executives said the election was at least a slight factor, compared to 64 percent who were asked the same question in the first quarter.
A majority of executives (79 percent) said the election is either not a factor in hiring decisions or they would continue to hire at their current pace.
Some 81 percent of survey takers said the election either was not a factor in capital expenditures and business expansion decisions or that they planned to spend at their current pace in those areas.
The percentage of executives who say they are optimistic about the U.S. economy increased one percentage point to 38 percent in the quarter. A year ago, the rate stood at 48 percent. Optimism about executives’ own organizations remained steady at 53 percent, the same level as last quarter and a year ago.
Headcount growth for the coming year is expected to be 1.3 percent, an increase from 1.1 percent last quarter. The technology industry is expected to be the hottest sector with 4.4 percent staffing growth. Not-for-profit and banking, meanwhile, bring up the rear at an anticipated growth rate of 0.4 percent, a drop of at least one percentage point for both industries since last quarter.
The top seven challenges for businesses, led by “regulatory requirements and changes,” remain the same as last quarter.
Some 92 percent of business executives said they expected an increase in healthcare costs in the coming year, compared to 90 percent last quarter. In aggregate, survey takers said they expected healthcare spending to increase 5.6 percent in the coming year, a one-tenth of a percentage point drop from last quarter.