President Trump speaks at the Economic Club of New York on November 12, 2019 in New York City.
With the looming December 15 deadline for imposing a new round of U.S. tariffs on Chinese consumer goods, including cell phones, laptops, toys and clothing, one might expect finance executives to have a grim view of the U.S. economy. Yet a report released Thursday found that finance experts are regaining confidence in the U.S. economy’s performance for 2020, following a sharp decline last quarter, although they still have low expectations for profit and revenue growth.
The drop in confidence in the domestic economy last quarter was due to uncertainty about the U.S. and China trade war, says Ash Noah, a vice president and managing director at the Association of International Certified Professional Accountants. “As things have unfolded, there are signs that it is going to be resolved and we are not going to have as big a spat as we thought,” Noah says.
Half of the executives are optimistic about the outlook, up from 42% last quarter, but a notable decrease from 79% early last year. Surveyed executives gave a lackluster forecast for cash flow, expecting profit and revenue growth in 2020 to be 2.7% and 3.4% respectively, the lowest expectation since the third quarter of 2016. While both the current marks are just a tenth of a percentage point lower than the previous quarter, they are down significantly from the fourth quarter projection last year. At that time, profit and revenue growth were expected to be 3.4% and 4.3%.
Inflation concerns eased in the fourth quarter, with 19% of respondents saying they feared rising costs, down from 23% in the previous quarter. Among individual factors, 47% of survey takers ranked labor costs as the most significant risk to their business, followed by raw material costs at 26% and interest rates at 13%. Noah thinks that the concern will continue to decrease. “At the end of last year, the Federal Reserve was talking about increasing interest rates, but now that stance has been softened as well so the fear of inflation is significantly down,” he says. “Expansion hasn’t been as they thought it would be, and they were trying to prevent the overheating of the economy because of cheap debt and that hasn’t really happened.”
The survey included 907 responses from certified professional accountants who hold leadership positions at their companies. The availability of skilled personnel remained the top perceived challenge among respondents, a streak that stretches back ten quarters. This quarter, 43% said they have too few employees, up from 38%. The U.S. Department of Labor’s November report saw an increase in job growth — 266,000 jobs were added to the U.S. economy last month — beating the 187,000 forecast by economists surveyed by Dow Jones. The unemployment rate decreased slightly from 3.6% in October to 3.5% in November.
The association puts together a CPA Index that measures the comprehensive view of all the executives surveyed based on their outlook on nine equally weighted factors — U.S. economic optimism, organization optimism, expansion plans, revenue, profits, employment, IT spending, other capital spending and training and development. The outlook for each individual factor is down year-over-year, with the largest decrease in U.S. economic optimism and revenue.
The total CPA Index for this quarter is 72 on a scale of 0 to 100, with 50 considered neutral and larger numbers signifying a more positive view. The CPA Index is the same as last quarter, but a decrease from 76 and 75 earlier in the year. When asked to rank the top challenge, the most executives chose the availability of skilled employees followed by domestic economic conditions, domestic competition and employee and benefits costs.
Even though the U.S. economic outlook has decreased year-over-year it is still at a comfortable range, according to Noah. “The index holding steady in the 70s shows that there is still room for expansion,” says Noah, “It’s good, it’s steady and it’s indicating that the rates of growth and the strength in the economy that we’ve seen will continue into the next 12 months.”