AICPA Business and Industry Economic Outlook Survey Detailed Survey - PowerPoint PPT Presentation

AICPA Business and Industry Economic Outlook Survey Detailed Survey Results: 3Q 2020 Management Accounting & Finance

Survey Background • Conducted between July 28-August 18, 2020 • Quarterly survey • CPA decision makers – primarily CFO’s, CEOs and Controllers • AICPA members in Business & Industry • 1,067 qualified responses 3Q 2020 Economic Outlook Survey

Survey Highlights Overall Index improves from 38 to a level of 54 ▪ US Economy optimism up from 29 to 37 CPAOI ▪ All components up including US Economic and Organization Optimism ▪ Expansion plans, revenue and profit expectations all trending upward Optimism about the economy, organization prospects and expansion plans rebound Economy ▪ U.S. Economy rebounds from 20% in Q2 to 24% in Q3 and ▪ Organization optimism rebounds 11 points to 41%. Organization ▪ Global economy outlook also improves slightly from 11% to 17% optimistic Expansion plans rebound from only 24% to now 43% having plans to expand Expansion Overall levels of employment are now expected to be flat, but key sectors are expected to Employment improve, and hiring plans for all sizes of business rebounded from Q2 levels Challenges Domestic economic conditions continued as the top challenge, followed by domestic political leadership which jumped four spots to the #2 position 3 3Q 2020 Economic Outlook Survey

CPA Outlook Index (CPAOI) The CPA Outlook Index is a robust measure of The CPA Outlook Index is the composite of the sentiment about the U.S. following nine indicators at equal weights: economy that is supported by the unique insight and • U.S. Economy Optimism - Respondent optimism about the U.S. economy • knowledge that CEOs, Organization Optimism - Respondent optimism about prospects for their own organization CFOs, Controllers, and • Expansion Plans - Respondent expectations of whether their business will expand other CPA executives over the next 12 months • Revenue - Expectations for increases or decreases in revenue over the next 12 have about the prospects months for their own • Profits - Expectations for increases or decreases in profits over the next 12 months organizations, their • Employment - Expectations for increases or decreases in headcount over the next 12 months expectations for revenues • IT Spending - Plans for IT spending over the next 12 months and profits, and their plans • Other Capital Spending - Plans for capital spending over the next 12 months • for spending and Training & Development - Plans for spending on employee training and development over the next 12 months employment. 4 3Q 2020 Economic Outlook Survey

CPA Outlook Index (CPAOI) A reading above 50 indicates a generally 81 positive outlook 79 79 79 77 76 76 76 76 75 75 74 72 72 71 with increasing 69 69 68 63 activity. 54 A reading below 38 50 indicates a generally negative outlook with decreasing activity. 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 CPA Outlook 71 69 63 68 69 74 76 75 77 79 81 79 79 76 76 75 72 72 76 38 54 Index 5 3Q 2020 Economic Outlook Survey

CPA Outlook Index (CPAOI) Component 3Q19 4Q19 1Q20 2Q20 3Q20 ∆Q to Q ∆Y to Y  08  23 U.S. Economic Optimism 60 64 74 29 37  12  14 Organization Optimism 72 73 78 46 58  21  18 Expansion Plans 72 71 75 33 54  24  25 Revenue 76 76 81 27 51  21  23 Profits 70 71 73 26 47  16  14 Employment 68 70 71 38 54  12  09 IT Spending 80 80 81 59 71  13  18 Other Capital Spending 74 71 74 43 56  11  16 Training & Development 72 72 73 45 56  16  18 Total CPAOI 72 72 76 38 54 6 3Q 2020 Economic Outlook Survey

CPA Outlook Index (CPAOI) vs. GDP 100 10.0% CPA Outlook 90 8.0% Index 80 6.0% 70 4.0% 60 2.0% 50 0.0% 40 -2.0% GDP Growth 30 -4.0% 20 -6.0% 10 -8.0% - 32.9 % 0 -10.0% 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 CPA Outlook 75 72 72 72 38 54 Index Change 2.0% 2.1% 2.1% -5.0% -32.9% in GDP 7 3Q 2020 Economic Outlook Survey

U.S. Economy, Organization and Inflation Optimism for U.S. economy gains 4 points Pessimists obviously cite the COVID-19 disruption impact on the economy, consumer demand and 24 % government spending Optimists cite the possibility of pent-up demand and lower energy costs, along with resilience and innovation Organization optimism recovers 11 points from 30% in Q2 to 41% in Q3 Expansion plans rebound from only 24% of respondents having plans to expand their business in 41 % Q2 to now 43% with plans to expand. Of the balance, 23% expect to stay the same, 25% expect to contract a little, now only 9% expect to contract a lot Concern about inflation remained at 20%; concern about deflation dropped to11% Concern about labor costs as most significant risk increased to 37% Raw materials cost concerns ticked up to 36%. 20 % Interest rate concerns eased from 13% to 12%. Energy cost concerns remained constant at 6% Food cost concerns as most significant eased from 12% in Q2 to 5% in Q3 8 3Q 2020 Economic Outlook Survey

Optimism & Expansion 100% The economic 90% outlook for the 80% U.S. economy, 70% your organization, 60% and the expansion 50% plans over the 40% next 12 months 30% 20% 10% 0% 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 U.S. 64% 74% 79% 74% 69% 57% 57% 57% 42% 50% 61% 20% 24% Organization 66% 70% 71% 70% 69% 68% 65% 62% 58% 58% 66% 30% 41% Expansion 65% 71% 72% 70% 70% 67% 66% 63% 61% 59% 64% 24% 43% 9 3Q 2020 Economic Outlook Survey

Inflation or Deflation? 100% For your 90% business, over 80% the next 6 70% months, which 60% are you more 49% 49% 47% 50% 47% concerned 40% about? Inflation 34% 29% 30% or deflation? 23% 27% 20% 20% 26% 17% 19% 20% 8% 18% 11% 10% 11% 6% 5% 5% 5% 3% 7% 2% 2% 2% 0% 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 Inflation Deflation 10 3Q 2020 Economic Outlook Survey

Inflationary Risk Factors Which of the 50% 45% following 40% 35% potential 30% inflationary 25% 20% factors 15% represents the 10% 5% most significant 0% Energy Raw material Interest Food costs Labor costs Other risk to your costs costs rates 3Q19 2% 5% 32% 37% 20% 4% business? 4Q19 3% 5% 26% 47% 13% 7% 1Q20 1% 6% 26% 46% 12% 9% 2Q20 12% 6% 28% 29% 13% 12% 3Q20 5% 6% 36% 37% 12% 5% 11 3Q 2020 Economic Outlook Survey

Key Performance Indicator Summary Revenues and Profits Spending Plans Revenue and profit improve but still expected to decline Spending plans improve Expected revenue for coming twelve months improve from an expected decrease Expected rate of increase for IT of -5.0% in Q2 to an expected decrease on only 0.6% going forward from Q3 spending improves to 1.9%, up from only 0.4% Profit projections also improved from -5.5% in Q2 to -1.2% in Q3 Other capital spending now projected to increase by 0.1%, up Hiring and Employment from -2.0% expected in Q2 Training spend now expected to Headcount plans also show some recovery decline by only -0.2%, which us up Anticipated rate of headcount change improved from -1.1% in Q2 to 0.0% in from -1.7% last quarter Q3 Marketing spending cuts ease Salary and benefit expected costs are now expected to increase at a rate of from -2.4% to -0.5% 0.9% going forward from Q3 rather than the expected Q2 decrease of -0.7% R&D spending plans turn positive Healthcare costs are now expected to increase at a rate of 4.3%, up from an from -1.6% to 0.1% expected rate of increase of 3.5% in Q2 12 3Q 2020 Economic Outlook Survey

Key Performance Indicators Expected Growth in Revenue and Profits Thinking about 10.0% the coming 12 8.0% months, please 6.0% comment on the 4.0% probable change for your 2.0% organization for 0.0% each of the -2.0% following key -4.0% performance -6.0% indicators -8.0% -10.0% 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 Revenue 2.9% 3.6% 4.3% 3.9% 4.3% 4.8% 5.0% 4.8% 5.0% 4.3% 4.4% 4.2% 3.5% 3.4% 4.3% -5.0% -0.6% Profit 2.3% 3.1% 3.5% 3.2% 3.5% 3.8% 4.4% 4.0% 4.3% 3.4% 3.6% 3.1% 2.8% 2.7% 3.3% -5.5% -1.2% 13 3Q 2020 Economic Outlook Survey

Key Performance Indicators Employees, Salary & Benefits, and Healthcare Costs Thinking about 10.0% the coming 12 8.0% months, please 6.0% comment on 4.0% the probable change for your 2.0% organization for 0.0% each of the -2.0% following key -4.0% performance -6.0% indicators -8.0% -10.0% 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 Employees 1.3% 1.6% 1.8% 1.8% 1.9% 1.8% 2.1% 2.1% 2.3% 2.0% 1.9% 1.9% 1.7% 1.6% 2.0% -1.1% 0.0% Salary & 2.1% 2.3% 2.3% 2.2% 2.4% 2.5% 2.7% 2.8% 2.8% 2.6% 2.6% 2.7% 2.4% 2.5% 2.6% -0.7% 0.9% Benefits Healthcare 5.6% 6.1% 5.6% 5.5% 6.3% 5.9% 5.6% 5.9% 5.7% 5.3% 5.2% 5.1% 5.1% 5.2% 5.1% 3.5% 4.3% 14 3Q 2020 Economic Outlook Survey