The results of the semi-annual Business and Industry Economic Outlook survey continue to show further erosion of optimism about the economy as a whole at mid-year. Reflecting the responses of 2,571 CPA decision makers, including 1,324 CFOs and 234 CEOs, only 46% continue to be optimistic or very optimistic as of June 2006.

However, CPA optimism about the prospects for their own companies continues to be strong. When asked about prospects for their own organizations, 68% continue to be optimistic or very optimistic, with projections for overall business growth for the second half of 2006 down only slightly from the six month projections of Dec. 2005. Moderate to substantial growth over the next six months is expected by 58% of the respondents, compared with 64% at Dec. 2005; 15% expect declines, up from 12% in Dec. 2005.

Growth from U.S. markets appears to be softening. Fewer companies are expecting increased growth from U.S. markets, and expectation of slower growth from U.S. market sources has begun an upward trend, especially among larger companies.

Plans for spending continue to be strong. Companies with plans for increased spending continue to outnumber those with plans for decreased spending in all categories surveyed. Anticipated spending on IT and new product development is especially strong among larger companies. Employee training and development spending by the companies with revenues in excess of $1 billion is expected to be slightly weaker than other companies—increases are expected by only 38%, decreases are expected by 7%.

Workforce increases are also expected to continue, although the rate of increase is down slightly from Dec. 2005. Thirty-nine percent of all companies anticipate increases in total workforce size in the next six months, compared to 45% who were anticipating increases as of Dec. 2005. More workforce reductions are expected by the largest companies with 21% expecting to downsize in the second half of 2006, compared with 17% at Dec. 2005.

CPAs continue to be concerned about the impact of changes in short-term interest rates on inflation with 75% of the respondents indicating they were more concerned about the impact on inflation than on economic growth. When asked about their ability to pass increased input costs on to customers in the price of their products or services, 26% indicated improved ability, 50% indicated minimal change, 24% indicated decreased ability. 

Consistent with the results of the Dec. 2005 survey, the issues of greatest concern at June 2006 continue to be energy costs, employee costs, and materials, supplies or equipment costs.

This article originally appeared in the September 2006 edition of The CPA Letter/Business & Industry supplement.

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