Things are pretty glum out there, broadly speaking, in the U.S. business community, and they’re not exactly perky in the trucking arena, either.
According to the latest AICPA Economic Outlook Survey compiled by the American Institute of CPAs (AICPA), business executive optimism regarding the U.S. economy is down to its lowest level in more than three years.
Some 28% of survey respondents identified themselves as “optimistic” or “very optimistic” about prospects for the U.S. economy over the next 12 months, the group said; down 17 percentage points from last quarter and 40 percentage points from a year ago.
In comparison, 34% of those polled by AICPA said they were “pessimistic” or “very pessimistic,” the highest ratio since the end of 2012, with the rest were neutral.
“For the first time since early 2013, domestic economic conditions have replaced regulatory concerns as the top perceived challenge for business executives,” noted Valerie Rainey, CPA, CGMA, senior VP and CFO of CMA CGM (America) and chair of the AICPA’s Business & Industry Executive Committee.
“Survey takers say they’re worried about slow growth, stock market volatility, the impact of low oil and commodity prices and upheaval in the global economy,” she added.
Rainey also said that concerns about both the U.S. and global economy are leading to sharply lower expectations for key performance indicators. For example, according to the poll, profits are expected to grow less than 1% over the next 12 months, down from a projected 2% last quarter, while revenues are only expected to climb 1.7% in the coming year, less than half the rate anticipated a year ago.
Things aren’t much better optimism-wise in trucking circles, either.
Michael Baudendistel, VP with the transportation & logistics research group at Stifel Finance Corp., noted in a market update that North American Class 8 orders dipped to 17,900 units in February, down 2% from January and down 43% year-over-year, though on a seasonally-adjusted basis, they were up 6% sequentially as February is generally a weaker month seasonally.
“This result was relatively in line with our expectations given the weak macro [economic] backdrop, the oversold conditions following a very strong 2015, and the direction of orders in recent months,” he said.
Though Stifel is leaving its Class 8 production estimates unchanged for now, the current order data indicates “there is more risk to the downside than the upside for production in 2016 and 2017,” Baudendistel pointed out. As a result Stifle’s 2016 and 2017 production estimates are 250,000 Class 8 units (down 24% year over year) for 2016 and 230,000 units (down 8% year-over-year) for 2017.
He did stress that North American Class 5-7 orders inched up 9% year-over-year to 21,600 units in February, which is up 24% sequentially from a “somewhat weak” January; slightly better than Stifel’s expectations and serving as “reinforcement” that medium-duty sales “continue to show stability” relative to “the more volatile Class 8 orders.”
That being said, Stifel thinks medium duty production will be flat to down slightly in 2016, growing only more or less in line with U.S. gross domestic product (GDP) in the next few years.
But if GDP remains sluggish, what then? Frankly, that’s what the feeling now seems to be, based on other findings within AICPA’s latest pulse-taking:
- Renewed softness in hiring outlook. Some 15% of business executives said their companies are looking to hire immediately, a drop of three percentage points from last quarter. Overall, 53% of respondents said their companies had the right amount of staffing, the same as last quarter. Projected headcount expansion has fallen to 0.5% for the coming year, down from a post-recession high of 2.1% in the fourth quarter of 2014.
- Survey takers have dimmer view of their own companies’ prospects. Optimism about business executives’ own organizations fell below 50% for first time since end of 2012. Some 44% now identify themselves as optimistic, down nine percentage points from a year ago.
- Less robust expansion plans. Some 52% of business executives said they expected their companies to expand in the next 12 months, the lowest amount since the end of 2012. For the largest companies – those with more than $1 billion in annual revenue – expansion plans fell from 59% last quarter to 49%.
- Different takes from different places. There is an interesting case of “divergent outlook” in AICPA’s poll as business executives in the West are most optimistic (55%) about their region, while those from the South are least optimistic (38%).
- Some good industry outlooks. Construction is expected to have the brightest prospects in the coming year – with 59% of executives expressing optimism this quarter – followed by technology (53%) and real estate (52%).
- Optimism slides most in finance and insurance. This category is now one of the lowest ranked sectors at 41%. The least optimistic sector, retail trade, saw a turnaround in the past quarter and now stands at 39%, up 11 percentage points from the end of 2015.
- Deflation is a rising concern. Some 22% of executives listed it as a potential issue, double the amount from last quarter. Inflation concerns, meanwhile, fell nine percentage points to 14%, quarter over quarter.
We’ll see if any of those outlooks change as spring begins to take wing.