Dive Brief:
- CEO and CFO optimism in the economy and future profits rebounded during the first quarter from Q4, prompting 55% of surveyed executives to pursue more ambitious expansion plans in coming months, the American Institute of Certified Public Accountants said Thursday.
- Thirty-nine percent of CEOs, CFOs, controllers and other financial executives said they were optimistic about the outlook for the economy, an 11 percentage point surge from Q4, the AICPA said. Optimism about their businesses’ prospects rose six percentage points during the period to 47%, according to the survey completed last month in conjunction with the Chartered Institute of Management Accountants before the outbreak of conflict in the Middle East.
- “Business leaders are feeling a renewed sense of optimism this quarter,” Tom Hood, vice president at the Association of International Certified Professional Accountants, said in a statement. “That said, we’re mindful that recent geopolitical developments could affect inflation trends,” he said. “Even with this uncertainty, the steady rise in company outlooks and expansion plans shows that executives are positioning their businesses for growth.”
Dive Insight:
The AICPA/CIMA survey results align with those from the Conference Board, which found that the share of CEOs planning this quarter to boost capital spending surged to 35% from 22% last quarter. Their confidence rose to the highest level in a year.
The Middle East conflict, if extending more than a few weeks, may dim C-suite confidence by raising energy costs, spurring inflation and slowing economic growth, according to economists.
Strikes on Iran since Saturday by U.S. and Israeli warplanes have pushed up the price of crude oil and other energy commodities. Futures for Brent crude oil have risen roughly 16% to $85 per barrel from $73 per barrel on Feb. 27.
“There is no economic upside to any of this, as the higher oil prices will weigh on growth and push inflation higher,” Moody’s Analytics Chief Economist Mark Zandi said on LinkedIn, referring to the regional fighting.
“This will, in turn, heighten Americans’ affordability concerns and complicate the conduct of monetary policy, as the [Federal Reserve] will be unsure whether to respond to the weaker growth by lowering rates or to the higher inflation by raising rates,” Zandi said.
Every sustained $10 increase in the per barrel cost of oil increases the cost of regular gasoline by 25 cents and, a year later, pushes up inflation by 0.15 percentage point, Zandi said. The higher costs also reduce economic growth by 0.10 percentage point.
Prior to hostilities in the Middle East, revenue growth forecasts for the next 12 months by CEOs, CFOs and other financial executives rose to 2.9% in Q1 from 2% in Q4, according to the AICPA/CIMA survey. Projections for profit growth increased to 1.6% this quarter from 0.8% the prior quarter.
Expectations for lower borrowing costs and pro-growth economy policies sparked optimism among survey respondents, the AICPA and CIMA said.
The One Big Beautiful Bill Act signed into law in July permanently extended lower marginal tax rates on work, saving, and investment and introduced several temporary tax cuts.
The legislation, while partially offset by Trump administration tariffs, will probably push up long-term economic growth annually by about 1.2%, according to the Tax Foundation.
