The results of the 1Q 2007 AICPA Business and Industry Economic Outlook Survey showed increased optimism among CPA decision-makers.  This reversed a trend of declining optimism in previous surveys. The survey, conducted in January 2007, showed more respondents (56%) who are optimistic or very optimistic and a drop in the number of pessimistic or neutral respondents. This optimism is reflected even more strongly in respondents’ outlook for their own organizations, with over 67% of respondents indicating they were optimistic or very optimistic, and 68% indicating that they expected their business to expand over the next twelve months. Only 14% expect their business to contract in the coming year.

This optimism comes despite the fact that 41% of respondents felt that the November 2006 election had a negative impact on their outlook, versus only 17% who felt that it had a positive impact. Optimism was generally consistent across various types of enterprises (public, private, not-for-profit) and various sizes of organizations.  There were some small differences across industries as construction, real estate and manufacturing organizations expressed slightly less optimism and technical, professional and scientific services organizations were slightly more optimistic.

Individual Expectations Support Overall Optimism

The optimistic outlook was supported by expectations of increased revenues, profits and employees this year. These expectations were tempered somewhat by the fact that more respondents expect increased revenues than expect increased profits. Pressure on profits appears to come from the combination of increased costs – input prices, salaries and benefits – and lower expectations of the ability to raise the prices charged. Optimism is also supported by plans for spending increases, particularly on IT, other capital expenditures and staff training and development.

When asked about the challenges faced by their organizations in the next 12 months, over 95% saw employee and benefit costs as a challenge with 21% seeing it as a major challenge.   Staff related issues – costs, availability of needed skills and retention account for 4 of the top 5 challenges faced by organizations.  Regulatory challenges rounded out the top 5.  Skills availability and regulatory challenges were of particular concern for the healthcare industry with over 40% of those organizations rating regulatory requirements as a major challenge.   US trade policy and foreign competition were seen as challenging primarily by organizations in manufacturing and wholesale businesses.

Demographics 

This quarter’s survey was answered by 2001 AICPA members, including 256 CEOs and COOs, 1074 CFOs and 389 Controllers.  Respondents from US privately-owned entities comprised 62.5% of the total, with 17% coming from US public companies and the balance from foreign- owned entities, government, education and not-for-profit organizations. From a size perspective, a large number of businesses of all sizes– from those with 1 employee and less that 10 million in revenue to those with over 1000 employees and over 1 billion in revenue - were represented.

Download or view 1Q 2007 Charts