AICPA Business & Industry

U.S. Economic Outlook Survey

3Q 2016

The CPA Outlook Index

The CPA Outlook Index (CPAOI) is a broad-based indicator of the strength of U.S. business activity and
economic direction that reflects the views of CPAs who are AICPA members in Business & Industry holding
executive positions in both public and privately-owned organizations of all sizes, and across a broad spectrum
of industries.

CPA Outlook Index

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The CPA Outlook Index (CPAOI) increased 1 point in the third

quarter of 2016 to 69, continuing its recovery from a sharp decline
in the first quarter.

CPA Outlook Index - 69

While optimism about the U.S. economy eased a point from 59 to

58 after rebounding significantly in the second quarter, optimism
about the prospects for respondents own organizations remained
constant. Expansion plans, profit expectations, employment and
training and development spending all showed strength in the third
quarter.

Component

3Q15 4Q15 1Q16 2Q16 3Q16 Q to Q Y to Y

U.S. Economic Optimism

67

64

47

59

58

01

09

Organization Optimism

73

70

63

68

68

00

05

Expansion Plans

72

70

63

69

72

03

00

Revenue

76

74

68

74

75

01

01

Profits

71

67

60

63

69

06

02

Employment

66

67

59

63

66

03

00

IT Spending

77

77

73

76

75

01

02

Other Capital Spending

72

72

67

70

71

01

01

Training & Development

69

68

67

67

70

03

01

Total CPAOI

71

69

63

68

69

01

02

The CPA Outlook Index

The CPAOI is a robust measure of sentiment about the U.S. economy that is supported by the unique insight
and knowledge that CEOs, CFOs, Controllers, and other CPA executives have about the prospects for their own
organizations, their expectations for revenues and profits, and their plans for spending and employment.
The CPAOI is a broad-based composite index that captures the expectations of our members and their plans for
a breadth of indicators of economic activity. It is a composite of the following nine measures at equal weights:

U.S. Economy Optimism - Respondent optimism about the US economy.

Organization Optimism - Respondent optimism about prospects for their own organization.
Business Expansion - Respondent expectations of whether their business will expand over the next 12
months.
Revenues - Expectations for revenue over the next 12 months.
Profits - Expectations for profits over the next 12 months.
Employment - Expectations for headcount over the next 12 months.
IT Spending - Plans for IT spending over the next 12 months.
Other Capital Spending - Plans for capital spending over the next 12 months.
Training & Development - Plans for spending on employee training and development over the next 12
months.

Each individual component indicator is calculated by taking the percentage of respondents who indicated that
their opinion or expectation for the metric is positive or increasing, and adding to that half of the percentage of
respondents indicating a neutral or no-change response. A reading above 50 indicates a generally positive
outlook with increasing activity. A reading below 50 indicates a generally negative outlook with decreasing
activity.
As an example, if 60 percent of respondents indicate an optimistic or very optimistic view, and 20 percent
express a neutral view, the calculation of the component indicator would be 70 [60% + .5 x 20%].

Outlook for the U.S. Economy and Organizations

Optimism relatively constant for economy and organizations, but expansion plans continue rebound
The number of CPA executives who are optimistic about the U.S. economy increased a point from 37% to 38%
in the third quarter after declining to 28% in the first quarter of 2016. The percentage of those pessimistic also
increased a point from 21% to 22%.
Organizational optimism, at 53%, remained constant with the second quarter. However, the percentage of
companies with expansion plans improved further from 58% in the second quarter to 62%.

Outlook for the U.S. Economy, Organizations & Expansion

Concerns about inflation and deflation flipped again this quarter, while not a significant concern in either
direction. After increasing to 23% in the second quarter, only 11% of respondents are now concerned about
inflation. Conversely, 18% are now concerned about deflation, jumping from only 12% in the second quarter.
Labor costs continue to be the most pressing concern for 55% of respondents. Raw material costs follow as the
top concern for 18%. Interest rate concerns eased further as the top concern for 16% of respondents to only
14%. Energy cost concerns fell back to the 5% level seen in the first quarter of 2016.

Key Performance Indicators

Outlooks for improved profits recover
Expectations for increased revenues eased a point to 2.9% after rebounding from 1.7% in the first quarter to
3.0% in the second quarter of 2016. However, expectations for profits in the coming year continued their
rebound, improving to 2.3%, up from 1.5% in the second quarter after dropping to only 0.7% in the first quarter.

Expectations for Revenue and Profits

IT continues to be the strongest category of planned spending over the upcoming twelve months and recovered
to 2.8% after falling to only 2.3% in the first quarter. Other capital spending plans also rebounded from 2.1% in
the second quarter to 2.4% in the third quarter. Spending for training and development also improved three
tenths to 1.6% up from 1.3% in the second quarter.
Expectations for healthcare cost increases continue to be higher than other costs, and also ticked down to 5.6%
after easing off from 5.7% in the previous quarter.
The expected increase in other input prices dropped to 1.9% from the 2.1% level seen in the second quarter of
2016. Fortunately, the expected ability to increase prices charged also rebounded to 1.5% in the third quarter,
after moving up to 1.3% in the second quarter.

Hiring Plans
Improved profitability and expansion plans also having positive impact on employment and spending
In the third quarter, 48% of all companies now say they have the appropriate number of employees. Those
saying they have an excess number of employees increased a point this quarter from 12% to 13%.
More than a third (38%) indicate that they currently have two few employees. Of these, the percentage of
companies that are planning to hire increased another two points from 19% in the second quarter to 21% in the
third quarter, and the percentage of those who are reluctant to hire decreased from 18% in the second quarter to
17% in the third quarter.

Staffing Relative to Needs

Industry, Region and Business Size Outlook

Optimism improves in most sectors; remains constant in manufacturing and construction
Retail trade fell off from its recovery in 2016 with only 33% of respondents being optimistic in the third quarter.
Retail hiring continues to be soft, but improved slightly to 1.1% from only 0.9% in the second quarter.
Wholesale trade optimism also declined from 50% in the second quarter to 45%.

Construction optimism improved to 69%, up from 59% in both the first and second quarters of 2016. However,
the expected increase in construction headcount eased from 1.4% in the second quarter to 0.8% in the third
quarter. Real Estate optimism remained constant at 62%.
Manufacturing optimism eased a point to 47% in the third quarter. Hiring in the manufacturing sector remained
constant, at a 1.2% expected increase for the coming twelve months
Professional Services optimism declined slightly from 70% in the second quarter to 67% in the third quarter.
Hiring in the professional services sector also eased a bit, but remains strong at 3%.
Technology optimism and hiring also recovered. As of the third quarter, 71% of technology respondents are
now optimistic. Technology hiring improved further from an expected increase of 2.3% in the second quarter to
4.4% in the third quarter for the coming twelve months.
Finance and Insurance optimism eased a point to 57% in the third quarter, but hiring improved from 1.4% to
1.7%.

Expected Employment Change by Industry

Healthcare provider optimism continues to be strong with 68% now feeling positive about their prospects, after
falling off to only 38% optimistic in the fourth quarter of 2015. However, healthcare-other respondent optimism
fell off in the third quarter from 63% to only 50%.
In terms of regional perspective, the West improved from 54% optimistic in the second quarter to 57% in the
third quarter. The South gave back some second quarter gains, falling back from 53% in the second quarter to
only 48% optimistic in the third quarter. The Northeast also gave back a good share of its second quarter gains,
declining from 62% to 58%, while the Midwest held its ground, remaining constant at 53% optimistic.
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Industry, Region and Business Size Outlook (contd)

Expansion plans were similarly mixed:

The number of companies with revenues < $10 million having expansion plans eased to 53%, after recovering
from 44% to 55% in the second quarter;

Expansion plans for the $10-$100 million range of companies continued their rebound, increasing further to 65%
in the third quarter

The $100 million to <$1 billion range of companies, also eased two points declining from 61% of companies with
expansion plans in the second quarter to 59% in the third quarter

However, the percentage of companies with revenues > $1 billion having expansion plans rebounded significantly
from 49% in the first quarter and 50% in the second, to 66% now saying they have expansion plans for the
coming year

Expansion Plans by Business Size

Top Challenges
Primary challenges to business remain relatively consistent
For the most part, the factors that our respondents identified as major challenges to their business remained
relatively constant in the third quarter

Regulatory requirements and domestic economic conditions maintained their ranking at the top of the challenges
list
Availability of skilled personnel, domestic competition and employee and benefit costs also maintained their spots
in the top five
Stagnant/declining markets, followed by domestic political leadership also held their sixth and seventh place
rankings
Liquidity moved up a spot to eighth, switching places with developing new products/services/markets, which
gave up a spot, now ranking ninth
Financing/cost of capital returned to the number ten spot after falling out of the top ten last quarter

Top Challenges Facing Organizations

Survey Background
The survey was conducted of AICPA Business & Industry members between August 9-24, 2016 and had 452
qualified respondents.
CFOs comprised 47% of the respondents, 23% were Controllers, 14% were CEOs or Presidents, 10% were VPs,
2% were COOs and 2% were CAOs; the remainder were Directors or other executives.
Seventy-seven percent of respondents came from privately owned entities, 10% from publicly listed companies,
and 11% from not-for-profits.
Seven percent came from organizations with annual revenues of $1 billion or more, 25% from organizations
with $100 million to under $1 billion in annual revenues, 51% from organizations with $10 million to $100
million and 17% from organizations with under $10 million in revenues (numbers may add to more than 100
due to rounding).

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