Political 'Hangover' Holds Back U.S. Business Confidence Despite Financing Boost

Business confidence has grown in the United States, according to new research from ACCA (the Association of Chartered Certified Accountants) and IMA (Institute of Management Accountants). However, businesses are not yet in a position to take advantage of better trading conditions and easier access to financing.

“Mid-2012 marked a turning point for the U.S. economy as politics cast a long shadow over the business environment, and only now are businesses beginning to recover and look ahead”

The Global Economic Conditions Survey (GECS), the largest quarterly economic survey of accountants in the world, has shown that in the first quarter of 2013, U.S. businesses were only just beginning to recover from the political uncertainty that dominated the second half of 2012. Twenty-three percent of the 2,000 respondents said they were more confident about the prospects for their organizations, while 40 percent reported a loss of confidence in the first quarter of 2013.

Although confidence among U.S. finance professionals saw some gains in line with the global average, the survey revealed the rebound in business and investment opportunities in early 2013 had not yet matched the levels seen in early 2012. Similarly, the survey revealed that pressure on cash flow and new orders has been easing for the last six months, but is still high compared to the spring of 2012.

“Mid-2012 marked a turning point for the U.S. economy as politics cast a long shadow over the business environment, and only now are businesses beginning to recover and look ahead,” said Emmanouil Schizas, Senior Economic Analyst at ACCA. “They are still suffering from a political hangover and appear to be waiting to see what happens. However, it is a good sign that U.S. enterprises are considering investment once again. The next quarter will test their ability to turn this newfound resilience into growth.”

Raef Lawson, Ph.D., CMA, CPA, IMA vice president of research, added: “Understandably, U.S. businesses are taking a cautious approach to growth, and that trend is clearly reflected across the world, not just in the U.S. That caution is perhaps best demonstrated by the ongoing low levels of business capacity building, despite more available growth capital. It would appear that a lack of available capital is not the main thing holding back U.S. businesses, but a lack of confidence in the economy might be.”

U.S. regional differences

The GECS has also revealed differences in the confidence index in finance teams across the U.S. regions.

The quarterly survey has shown that since mid-2012 the Northeast and the South have diverged from the rest of the country in terms of business confidence, performing significantly worse, even taking into account the recent rebound in early 2013. Also, confidence levels in the West and Midwest are converging (i.e., reaching similar levels).

Global confidence improving

Overall, the global confidence index showed nearly one quarter (24 percent) of respondents reported they were more confident about the prospects of their organizations than three months earlier, up from 19 percent in late 2012, while 37 percent reported a loss of confidence, down from 43 percent. The highest confidence levels were in the Middle East.

Schizas said: “The global confidence gains recorded in Q1 2013 are much larger than what would be expected given the current economic climate. The survey showed that over two-fifths (43 percent) of respondents in early 2013 believed the global economy was improving or about to do so, up from 30 percent in the previous quarter, while just over half (54 percent) expected deterioration or stagnation, down from 65 percent in late 2012. It seems confidence is fuelled by an expectation of economic improvement, but there is no sign of this being justified. As a result, confidence is likely to be short-lived.”

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