Nearly three-quarters of financial and accounting leaders believe the United States is at moderate or significant risk of recession, according to the Second Quarterly Business and Industry Outlook Survey released Thursday by the International Certified Professional Accountants Association.
The Outlook CPA Index, an equally weighted measure of nine-component sentiment, remained in positive territory, falling from 73 points to 67 points out of 100, but was the fourth consecutive quarterly drop and some components, including optimism about the US. economy – fell sharply.
For some financial leaders, it is time to prepare for an economic storm driven by complex crosswinds, especially inflation.
“At times like this, our strategy is to be more conservative,” said Lindsey Crisp, CPA, CGMA, president and CEO of Carver Machine Works.
The company, with about 40 employees, manufactures metal, welding and machining for industries from paper and petrochemicals to naval defense, based in Washington, North Carolina.
“We talk a lot about how our business combination is and how we manage our cost model to make sure we have the worst case scenario to stay profitable, even if that has cost us a bit of an advantage,” Crisp added. .
Only 18% of respondents had an optimistic view of the national economy next year, compared to 70% a year ago and 36% in the first quarter of 2022. This is the lowest percentage of optimists in the country. the survey from the third quarter. of 2011.
Respondents tend to have more confidence in their own organizations than in the economy at large. But still, 47% said they were optimistic about their own businesses, down 58% from the previous quarter. Sentiments about the global economy have also eased: pessimists now outnumber optimists by 5 to 1 (61% to 12%).
Crisp is confident in the performance of his own company next year, thanks to his blocked contracts, but the future becomes more cloudy. Later, 2023 is “where my confidence begins to decline,” Crisp said, citing concerns about interest rates, inflation and the results of the midterm elections.
About 84% of respondents expressed significant or moderate concerns about the effect of inflation on their business. Interest rates, food costs, and energy costs were cited as major concerns, but labor and material costs were again the most common major concerns. Inflation is the main driver of economic fears.
“Will you keep up with inflation? Can you raise the tide? If you can’t, how stable are you or how safe are you to withstand the storm and get out on the other side?” said Tom Earnshaw, CPA (inactive), chief financial officer of D Magazine Partners, a magazine publisher in Dallas.
The company is facing significant increases in paper costs, mostly because online giants like Amazon are asking for more cardboard for shipping. But it is poised to face a possible slowdown, Earnshaw added.
Across the country, these rising costs are causing some companies to change their plans, including High Real Estate Group LLC, a real estate development business in Pennsylvania.
“We’ve had to be creative to offset the rising cost of our projects. In some cases, we’ve pushed the projects,” said Rachel Scarpato, CPA, vice president and controller of the organization.
Supply chain disruptions also continue to affect projects, with delays for large components such as roofing materials.
Some of Scarpato’s colleagues are getting nervous about the economy as a whole, but she remains more confident and stresses that “we are investing in the long term and are optimistic about the growth of our core asset classes.”
“We’ve had significant wage growth. People are making money and saving money,” Scarpato said. “I think if we have an economic downturn, it will be shorter and shorter.”
The survey found that average earnings growth projections fell to 0.7% for next year. Expected revenue growth also softened to 3.4%. Meanwhile, companies expect wages, profits and wage costs to grow at the fastest pace in recent years.
Among respondents, 40% said they planned to hire more people and another 16% said they had too few but were hesitant to hire.
The tight labor market is complicating plans for small and large employers. For example, Carver Machine Works has kept its salaries ahead of competitors, but has also lost long-term staff to larger companies. In response, Crisp is limiting his appetite for new business and is pushing for longer deadlines so he can complete projects with his existing staff.
“We’ve taken a defensive stance. We’ve done everything we can to retain the staff we have so we can maintain our quality and the brand we’ve built,” Crisp said.
Despite the economic turmoil, some financial leaders see opportunities. Kerry McElroy, CPA, vice president of finance for French Broad Chocolates, said the outlook is “discouraging, but exciting for our business.”
The company makes chocolate in Asheville, North Carolina, and has two retail stores. The company is looking to increase costs, but has a well-established supply chain, which obtains raw cocoa beans from farms in Central and South America.
“We’re in an industry niche where we haven’t had many recent supply chain disruptions,” McElroy said.
The company roasts the beans itself and turns them into chocolate, and McElroy sees plenty of room to grow and start selling nationwide.
“We have opportunities for efficiency,” he said, adding with a laugh, “Who doesn’t want to make more chocolate?”
“Andrew Kenney.” is a freelance writer based in Colorado. To comment on this article or to suggest an idea for another article, please contact Neil Amato at Neil.Amato@aicpa-cima.com.