With commercial activity hobbled by pandemic-related restrictions, the CFOs, controllers, CEOs, and senior-level CPAs and CGMAs we poll reported that their companies in aggregate have slashed profit outlooks and pulled back hiring plans for the coming year. Our CPA Outlook Index – a comprehensive gauge of executive sentiment within the survey – dropped to its lowest level since early 2009, when the Great Recession was still in full bloom. Optimism in the U.S. economy is at its lowest ebb since late 2011.
The Economic Outlook Survey is designed to be forward-looking and offers key insights for the coming months. Data about the future state is limited and, in such cases, finance professionals need to rely heavily on professional judgment and trusted data sources to chart their near-term forecasts.
Whilst the outlook is grim, this is the time for Finance leadership to rise to support their organizations with perhaps the greatest challenge their businesses have faced, and for Finance leaders to guide and lead their organizations back to the new normal, whatever that new normal may look like.
Here are a few takeaways from the survey:
Economic pain is widespread but not evenly distributed. Executives said 92 percent of their businesses have been impacted to some degree by the pandemic, but some sectors have been hit harder than others. Hospitality and Food Services, which includes travel and leisure segments, Retail Trade, and Mining, Natural Resources and Oil and Gas (a category that’s gotten a double whammy due to price turmoil) all lead this list.
Some sectors are a mixed bag. Spending on IT, for example, is expected to show slight growth over the next 12 months, although at a lower rate than anticipated last quarter. Yet from an employment standpoint, IT is expected to contract by one percent. Employment in Healthcare-Other, which includes pharmaceuticals and medical device makers, is expected to grow but optimism in that sector fell this quarter. Bottom line: different sectors will require different tactics and scenario planning going forward.
The pandemic has reshuffled top challenges. “Availability of skilled personnel” had been the top challenge cited by survey respondents since the third quarter of 2017. But with unemployment hitting staggering levels, that category has receded to No. 8 on the list. The new top three are domestic economic conditions, stagnant/declining markets and liquidity. The latter is back in the top 10 for the first time since 2016.
Deflation fears are on the rise. Inflation concerns had outpaced deflation during the long economic expansion, although the gap has narrowed in recent quarters. Inflation fears ticked up three percentage points to 20 percent this quarter, but the real story was a larger increase in deflation fears from seven percent to 18 percent, which tracks with a decline in expectations for input prices. Watch this space.
Concerns are interlocking, which creates greater uncertainty. Customer demand and ability to pay affect a company’s cash on hand, and the resumption of business operations is tied into the safety and well-being of employees. The potential of second-wave outbreaks, lingering travel restrictions on business and legal liability issues are other issues that complicate both near-term and long-range forecasting and strategic planning. Accounting professionals will need to be clear-eyed, agile and creative as they assess economic conditions and help businesses navigate through the months ahead.
To view the Economic Outlook Survey’s executive summary and full presentation, please visit the AICPA Business & Industry Economic Outlook Survey page.
Ash Noah, CPA, FCMA, CGMA, Managing Director of CGMA Learning, Education and Development, Association of International Certified Professional Accountants