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Inflation, talent, labor costs: 3 challenges amid slightly rising optimism

Overall, positivity about the U.S. economy remains muted, with just 23% of respondents to a recent survey saying they are optimistic about the domestic outlook for the next 12 months. That’s an improvement from the fourth quarter, when just 12% expressed optimism.

Also, 45% of respondents in the first-quarter Business and Industry Economic Outlook Survey are optimistic about their own businesses, up from 35% at the end of last year.

This episode of the Journal of Accountancy podcast goes into further detail about the optimists, the pessimists, and the reasons for their sentiments.

Analyzing the survey data is Ken Witt, CPA, CGMA, associate director–Management Accounting Research and Development at AICPA & CIMA, together as the Association of International Certified Professional Accountants.

What you’ll learn from this episode:

  • An overview of first-quarter survey results.
  • A breakdown of revenue and profit projections for the coming 12 months.
  • Finance leaders’ opinions on hiring this year.
  • The top challenges listed by CPA decision-makers.


Neil Amato: Welcome to the Journal of Accountancy podcast. This is your host, Neil Amato. The possibility of a recession remains in the United States, but it’s just that — a possibility, not a guarantee. Data from CPA decision-makers in business and industry in the U.S. shows that overall concerns remain on several fronts. But, also, there are slight signs of improvement.

Joining me today to help decode some of those signals from the CPA decision-makers and explain results from the first-quarter AICPA & CIMA Business and Industry Economic Outlook Survey is Ken Witt.

Ken is a CPA who holds the CGMA designation. His title officially is associate technical director for management accounting research and development. His title unofficially is Economic Outlook Survey guru. He’s been in charge of this for more than a decade. Ken, thank you for being on, and I’ll get right to my first question. While no one can say for sure we’ve hit bottom, there is data in the survey that appears to show improvement after the fourth quarter’s somewhat dismal outlook.

Ken Witt: Yeah, Neil. The fourth quarter was pretty grim, but we are seeing a few upticks in some things this quarter. Inflation continues to be a concern, topping our list of challenges, and 82% of our respondents are still concerned about it. But optimism about the U.S. economy, while not stellar at 23%, is still up from only 12% in the fourth quarter of 2022.

Perhaps more notable is the decline in pessimism about the global economy. In the fourth quarter of 2022, we had 72% of our respondents who were pessimistic about the global economy, and there seemed to be little likelihood that the EU would be able to avoid a recession. So, fingers crossed on that front.

While we still only have 10% of respondents being optimistic about the global economy, now this perspective is a little less bleak with now only 40% pessimistic. This always translates down into the key stat in our survey is optimism about our respondents’ own organizations. That’s what we really focus on. That optimism has improved to 45% in the first quarter of 2023, up from only 35% in the fourth quarter of 2022.

This optimism is supported by an uptick in expansion plans as well. We now have over half, 52% of our businesses, saying they have plans to expand. That’s up five points from 47% in the fourth quarter. On the other side of that equation, the number of businesses with plans to contract has also eased from 27% in the fourth quarter to now only 20% who are in the contraction mode.

Amato: While not altogether positive, it’s definitely less negative and showing signs of improvement. What about the various key performance indicators that are part of the survey? What do they say to you with revenue and profit projections, for instance?

Witt: Actually, that’s a pretty positive front with improvement pretty much across the board. Revenue projections are up half a point from a 2.1% to 2.6% rate of increase for the coming 12 months. Profitability projections have also rebounded back into positive territory. In the fourth quarter, we had a profitability projection that was a decline of two-tenths of a percent.

Now we’re seeing a projected increase in profitability of six-tenths of a percent. Once again, not stellar, but headed in the right direction. Also on the spending front, we tracked spending on a number of different metrics, and we’re seeing increases in spending for IT, other capital, and also slightly an increase in spending for training and development.

Amato: One key measure, I think every quarter in this survey, is to look at these companies hiring plans. What is the outlook for hiring, and also what are the hiring challenges?

Witt: Both remain with us on the hiring side. Our list of challenges, the availability of skilled personnel and an employee, and benefit costs follow behind inflation at the top of the challenges list. But we still have a third of our companies needing employees and having plans to hire, while only 11% are hesitating.

We ask companies whether they have the right amount of employees, whether they need employees, and whether they’re willing to go ahead and hire, or whether they’re concerned about the economy and are hesitating on that front. Notably, while we have some reports of sizable layoffs in the news media, it’s the companies in the higher-level revenue bands [in the survey] that have the most robust hiring plans.

They have the most employees, they have the most plans. While $0 to $10 million revenue companies are holding the line, it’s the bigger companies that have plans to hire. Hopefully, that will continue to keep our unemployment figures low.

Amato: In this survey’s history, at least recently, the availability of skilled personnel was a constant top challenge. It’s been replaced in about the past year or so with inflation. What are some of the potential impacts of inflation, and what more can you say about some of the challenges that these CPA decision-makers face?

Witt: One of the things we do every quarter is we’ve got our core list of questions and then we also ask our survey-within-the-survey questions on specific topics. This quarter in the survey within the survey, we drilled down a bit deeper at some of this inflationary and recessionary impact on our members in business. These results also reflect what I described as a cautiously optimistic sentiment this quarter.

On the wage front, we asked about companies’ plans for increasing salaries and wages significantly and in comparison to 2022. What we got back was that while we had 71% of our respondents saying they had increased salaries and wages significantly in 2022. Only 39% say they have plans to do the same in 2023, and 56% said they do not have plans for significant increases in 2023. Hopefully, that will temper the inflation impact as companies hold the line on the salary and wage increases that they have plans for in 2023.

We also asked about the impact of inflation and interest rates on capital investment plans. I found this interesting. We did have an increase in IT spending, an increase in other capital investments. But when we asked about the impact of inflation and interest rates on their plans, 25% of our respondents did indicate they have some plans for reducing capital investments in this market, but 59% said their plans remain unchanged, and 12% said they’re going ahead and increasing their capital investments. Once again, cautiously optimistic perspective from the increase in wages and increase in capital investment.

Amato: Ken, anything you’d like to add in closing?

Witt: We also asked about the recessionary impacts, inflation, and interest rates. While nearly a third have taken some sort of action like hiring or recruitment freezes, layoffs, and other cutbacks, 68% are telling us that the current economic dynamics had not yet impacted their employment plans.

Most companies are able to just go ahead with their plans. The big news that we’re hearing in the media about some of the big companies, especially the tech companies, having these sizable layoffs – hopefully, that won’t spread throughout the rest of the economy and into smaller businesses.

Amato: Well, Ken, thank you for that summary. We will look forward to talking to you in early June for the next quarter’s results. It’ll be interesting to see how things progress from now to then. Thank you.

Witt: Look forward to it.

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