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Survey: business optimism remains high but concerns growing

Rising inflation, the impact of steel tariffs, and finding talent the big worries on the economic horizon.

Business executive optimism remains high where the near-term future of the U.S. economy is concerned, according to the first-quarter AICPA Economic Outlook Survey, which polls chief executive officers, chief financial officers, controllers and other certified public accountants in U.S. companies.

Yet growing concerns regarding inflation, the ability to fill open job positions with the “right talent” and the unknown impact of recently-imposed steel tariffs are starting to “temper” their outlook to a degree.

“Business executives are drawing a lot of confidence from current economic indicators, and cite federal tax reform and deregulation as two factors in their improved outlook over the next year,” noted Arleen Thomas, CPA, CGMA, managing director of the Americas market for the Association of International Certified Professional Accountants.  (AICPA) in a statement. “At the same time, we’re seeing an uptick in concerns often associated with a hot economy, from talent pool issues to rising inflation fears.”

According to the group’s poll, 79% of business executives said they were upbeat about prospects for the economy in the first quarter, eclipsing the fourth quarter’s post-Great Recession positivity high of 74%. As a point of reference, optimism levels were as low as 28% in early 2016, AICPA noted.

Survey respondents’ view of their own companies’ outlook over the next 12 months also set a post-recession record, with 71% expressing optimism, the group said.

Yet increasing concern about inflation is particularly acute, AICPA added, with 49% of business executives saying they view it as more of a risk than deflation over the next six months. That’s up from 27% in the fourth quarter and in the previous five years, it had never exceeded 38%. The main inflationary risk factors cited are – in order – labor costs, raw material costs and interest rate hikes, the group’s poll found.

On the job front, half of business executives in AICPA’s survey said that though their companies have the “right number” of employees, hiring remains a focus, with 27% of companies saying they plan to fill positions immediately (up two percentage points from the fourth quarter last year) and another 14% (up one percentage point) indicating they have too few employees but are hesitant to hire. Finding the right candidates remains an issue, however, as “availability of skilled personnel” remains the No. 1 challenge for businesses for the third quarter in a row.

On a separate note, the CPA Outlook Index – a comprehensive gauge of executive sentiment within the AICPA survey – rose two points in the fourth quarter to 81, a post-recession high. 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:

  • Asked about their take on potential interest rate hikes over the next 12 months, three-in-four business executives said they had at least a slight concern. But only 10% viewed this as a “significant concern.”
  • Asked to quantify the federal tax reform law’s impact on their earnings this year, half of respondents, excluding those from the not-for-profit sector, expect it to have a “positive impact,” while 36% said they anticipate it will have no impact.
  • Some 29% of companies said any tax savings from federal tax reform would go to increased capital spending, 17% said they would use savings to pay down debt, while almost 13% said they would hire more workers. About 10% said they will issue a dividend to investors, and 3% plan to buy back stock. Another 5% expect to acquire or merge with another company.
  • Most business executives (74%) said their companies hadn’t yet passed on tax savings to workers in the form of pay increases or benefit changes. Of those that have, 12%increased salaries or wages, and just under 5% offered a one-time bonus.
  • The percentage of business executives who expect their company to expand in the coming year increased from 71% to 72%, a post-recession high.
  • Revenue and profit expectations for the next 12 months have grown every quarter over the past year, and now stand at 5% and 4.4%, respectively.
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