Overview
While things are not getting any better neither are they getting any worse – that is the message of the 2Q 2008 AICPA/UNC Kenan-Flagler Economic Outlook Survey of CPA Financial Managers. Respondents to the survey continue to expect economic difficulties over the next 12 months but the amount of pessimism has not increased since the 1Q 2008 survey ending a year long erosion of confidence in the US economy. Responses to the 2Q survey were virtually unchanged from the 1Q survey with 57% percent of respondents indicated that they were pessimistic or very pessimistic in their outlook for the US economy and 12% saying they were optimistic or very optimistic versus the 59% pessimistic and 12% optimistic responses in the 1Q survey. As in previous surveys respondents continue to be much more optimistic in their outlooks for their own organizations than about the US economy with optimists outnumbering pessimists by a two to one margin. In 2Q 2008 45% of respondents indicated that they were optimistic or very optimist about their organizations prospects while only 22% are pessimistic or very pessimistic. Expectations for expansion and contraction continue to support these more optimist views with 51% indicating that they expected their business to expand this year.
Overall respondents may be anticipating slightly tougher economic conditions with expectations for revenue and profit growth drifting downward slightly but not significantly and expectations for input price increases heading upward without a corresponding expectation for increases in prices charged. Overall the responses on these questions are still positive with the majority of respondents expecting some revenue growth and 39% expecting revenue growth of at least 5%. Profit expectations show the impact of the higher costs with 49% expecting profit growth. But even here almost one third of respondents (32%) expect profit growth to exceed 5%. The good news for workers is that almost three quarters of respondents continue to expect to maintain or increase current employment with 35% expecting growth in the number of employees. Similarly over three quarters of respondents expect salary and benefit (not including healthcare) increases. Spending plans have also remained stable.
Impact of Credit Crisis
The impact of the credit crisis on member’s businesses does not seem to be as widespread as may have been feared. While nearly 20% of companies are experiencing collection problems, 18% are facing more expensive or more restrictive credit, and 14% no longer have access to previously available sources of financing, 45% indicated that they were experiencing no direct impact of the credit crisis. Similarly, while approximately 20% of companies indicated they were implementing more restrictive credit and collection practices and nearly 20% were employing more aggressive inventory and working capital management, 50% of the respondents indicated that they have not changed strategies in response to the credit market crisis.
Response to Economic Conditions
We also asked specifically about plans to adopt specific measures in response to current economic conditions. Those responses are as follows:
- Capital spending cuts 22.8%
- Hiring freezes 22.6%
- Travel restrictions 21.4%
- Compensation freezes 17.1%
- Layoffs 16.3%
- Outsourcing 9.2%
- Facilities closings 7.5%
- Other 8.0%
Fair Value Accounting
Our second quarter “survey within the survey” focused on fair value. At the “top-line” level, when asked about fair value accounting in relation to the sub-prime mortgage crisis, 83% of the respondents indicated they did not think fair value accounting was a major cause of the crisis. On a related question, only 36% of the respondent’s thought that fair value accounting facilitated the public’s realization of banks’ aggressive lending practices. When asked about the impact of fair value accounting on their own company financial statements, 76% indicated that they expected either very limited or no impact.
2Q 2008 Survey Summary Report
2Q 2008 Survey Detailed Charts