After improving in 1Q 2007 optimism about the Economic Outlook for the US has dropped back to June 2006 levels. In 2Q only 48% of respondents said they were optimistic or very optimistic about the economic prospects for the US in the next 12 months versus 56% who stated their views as optimistic or very optimistic in the 1Q survey. Optimism on state economic outlooks showed a similar decline. This decline is in sharp contrast to respondents expectations for their own organizations where 66% of respondents stated they were optimistic or very optimistic about their organizations prospects. This was consistent with 1Q results and backed by continued stability on survey questions concerned organizations’ revenue, profit, cost and hiring expectations.
Gas Prices & Housing
The key concerns driving the drop in optimism appear to be the housing market and fuel prices. When respondents who indicated their outlook had changed were asked to identify the most significant contributing factor the most frequent issues mentioned were the housing market and gas prices. Respondents were concerned about the impact these areas would have on discretionary consumer spending. Other factors mentioned included the war in Iraq, the government particularly the change in Congress, debt, inflation, interest rates and declining domestic investment.
Concerns about fuel prices also appeared in two other spots in the survey. In the section on challenges facing organizations the results for most questions were stable from 1Q to 2Q with the exception of the question concerning energy cost or availability. On this question the number of respondents who see this as a challenge jumped from 54% in 1Q to 66% in 2Q. However it is also worth noting that while respondents saw energy as a challenge they appear not to see it as having a major impact on their financial results as indicated by the stability on the revenue, profit and cost questions.
Concerns about fuel prices were also evident in respondents’ answers to a question concerning “doomsayer predictions”. When asked which of three possible predictions – significant number of sub-prime mortgage foreclosures, significant decline in stock prices or a significant increase in the price of gasoline – would have the most adverse effect on their business, over half responded “the increase in the price of gasoline”. Of the remainder 30% chose stock price decline while 18% chose the sub-prime mortgage foreclosures.
From an industry perspective respondents from the Mining, Oil & Gas and Utilities industries were most likely to be optimistic in their outlook for the US Economy while those in Retail Trade and Information & Media were less likely to be optimistic for the US. Organizational optimism showed a slightly different story. Although Mining, Oil & Gas and Utilities industry respondents continued to be the most optimistic, Wholesale Trade joined Retail Trade on the less optimistic side while Information & Media respondents were about average in their optimism. It should be noted that the number of respondents for both the Utilities and Information & Media industries were relatively small.
Demographics
The survey was conducted of AICPA Business & Industry members between April 10 and May 9, 2007 with 1354 respondents. Over half the respondents (52%) were CFOs, 22% were Controllers and 14% were CEOs or COOs. Sixty-five percent of respondents came from privately owned entities, 16% from public companies, 10% from government, education and not-for-profits and 5% from foreign owned companies.
View or download the 2Q 2007 charts