ECONOMIC PESSIMISM LEADS TO DROP IN REVENUE AND PROFIT PROJECTIONS

Accounting and finance leaders are pessimistic over the national economic outlook over the next year and have growing doubt over additional economic issues, according to the third-quarter Business and Industry Economic Outlook Survey released Thursday by the Association of International Certified Professional Accountants.  Survey results revealed concerns over inflation, expansion, profitability, and declining revenue and profits.

CPA decision-makers — primarily CFOs, CEOs, and controllers — were asked questions about the global and U.S. economies, current challenges, business projections, and additional topics in the quarterly survey. The survey had 375 responses between Aug. 2 and Aug. 22.

Economic optimism is dimming. Hopefulness for respondents' own organizations is now at 41% — a six-point drop in optimism from the second quarter of 2022 and 24 percentage points lower than at this point a year ago. The outlook for the U.S. economy remained bleak with only 18% of respondents showing optimism, unchanged from the second quarter. The state of the global economy is of growing concern with only 9% of respondents sharing positive sentiment.

Among finance leaders, the pessimistic outlook and downward trends can be reflected in additional survey results.

Revenue growth projections dropped nearly one percentage point from the second-quarter results — from 3.4% to 2.6%. This is the lowest revenue growth projections have been since the end of 2020. On average, respondents projected no increase to their organizations' profits — a slight decrease from last quarter and the fifth consecutive quarterly drop. 

Spending priorities have also shifted slightly since the second quarter. Growth in IT expenditures is projected to remain relatively strong at 3.4%. Recent quarters have seen similar increases in IT spending. The anticipated pace of spending growth on other capital investments fell from 3% in the second quarter to 1.9% — the lowest it has been since the first quarter of 2021. 

Inflation was cited as a top challenge by survey respondents for the fourth straight quarter, with 87% of respondents in agreement. Second to that came the challenge of rising expenditures for materials, supplies, and equipment.

Inflation and materials' costs aren't the only concerns. Finance leaders share worry over the availability of skilled personnel, employment costs, and turnover — 42% believe labor costs are the top inflationary risk factor. Major geopolitical concerns include the ongoing war in Ukraine and potential impacts of slowing growth in China.

Energy costs have been cited by between 8% and 13% of respondents the last four quarters as the top inflationary risk factor, compared with just 4% in the third quarter of 2021. 

Amid the challenges of inflation, finance leaders are still looking to hire. Many respondents do see expansion on the horizon — 49% plan on expanding in some capacity. This is a three-percentage-point decrease from the second quarter, however. About 34% of respondents are hoping to hire, while 19% state they have too few employees but are hesitant to hire.

By comparison, about 4% of finance leaders are expecting a large contraction to their business in the next year, and 21% expect a slight contraction.

Respondents did share some bright spots, including the lessening of supply chain pressures, employment strength, and government attempts to rein in inflation.

Source: www.journalofaccountancy.com

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