Inflation Fears, Labor Woes Dim Execs' Optimism: Survey

Business executives’ optimism about the U.S. economy has dimmed as the third quarter gets underway, the American Institute of CPAs reported Thursday.

Only 51% of executives expressed optimism about the U.S. economy over the next 12 months, a steep drop from last quarter’s measure of 70%. 

AICPA’s third-quarter business and industry economic outlook survey was conducted from Aug. 3 to Aug. 23 among 669 CPAs who hold leadership positions, such as chief financial officer or controller, in their companies.

Survey respondents cited several reasons for the decline in optimism. Seventy-seven percent of them said they are now concerned about inflation, particularly regarding raw material and labor costs. Salary and benefit costs are expected to increase at a rate of 3.7%, or higher than at any time since the pre-recession economy. 

To combat rising costs, 37% of executives said they are imposing price increases, 34% are cutting costs and 20% are stockpiling materials and components, among other strategies. 

Some 40% of business executives said their companies have too few employees and are looking to hire immediately. Another 14% said they also have too few employees but are hesitant to hire. 

In a sign of the stresses in the job market, executives surveyed said two of their main challenges in the third quarter are availability of skilled personnel and staff turnover.

And not least among respondents’ reasons for dampened optimism about the economy is concern about the potential for COVID-19 variant surges.

A Look Ahead

The AICPA noted that its survey is a forward-looking indicator that tracks hiring and business-related expectations for the next 12 months. In comparison, the U.S. Department of Labor’s August employment report, scheduled for release on Friday, looks back on the previous month’s hiring trends. 

The CPA Outlook Index — a comprehensive gauge of executive sentiment within the AICPA survey — now stands at 75, down three points from last quarter. The index is a composite of nine equally weighted survey measures set on a scale of 0 to 100, with 50 considered neutral and higher numbers signifying positive sentiment. 

The new survey found that companies are taking steps to improve recruitment and retention, with 64% of business executives reporting their organizations are offering higher wages or salaries and 46% saying they are offering more flexible work arrangements. 

Sixty-five percent of business executives expressed optimism about prospects for their own companies over the next 12 months, down from 76% last quarter. Similarly, 64% said they expect to expand over that period, versus 69%.

The results also showed that expectations slid for both profit and revenue growth over the next 12 months. Survey respondents now expect revenue growth to be 4.3% over that term, compared with a projected 5% projection last quarter. They anticipate profit growth to be 2.5%, down from 4% last quarter.