Dive Brief:

• Nearly six out of 10 audit partners (57%) hold a pessimistic view toward the U.S. economy during the next 12 months — a surge of 13 percentage points since May, according to a survey by the Center for Audit Quality (CAQ).
• Seven out of 10 audit partners (73%) expect companies to increase prices and 68% predict that inflation will persist during the next 12 months, CAQ said, describing results from a survey last month of 648 auditors who focus on companies across a range of industries.
• U.S. companies face the strongest headwinds from price pressures, labor shortages and supply chain bottlenecks, survey respondents said. Three out of four auditors identified inflation as the biggest risk to the companies they audit, according to CAQ.

Dive Insight:

The worst inflation in nearly four decades showed signs of slowing last month.

The Consumer Price Index rose 7.7% in October compared with the same month a year ago, after increasing 8.2% in September, the Labor Department reported last week. The Producer Price Index, a measure of what suppliers charge businesses, gained 8% compared with October 2021. In September the index rose 8.4% year over year.

Federal Reserve policymakers have said they need to see a sustained decline in price pressures before pausing the most aggressive tightening of monetary policy since the 1980s.

Fed Vice Chair Lael Brainard emphasized Monday that the central bank is not finished withdrawing stimulus although it may consider trimming the size of its increases in the main interest rate at future meetings.

“It will probably be appropriate soon to move to a slower pace of increases,” Brainard told Bloomberg. “But I think what’s really important to emphasize — We’ve done a lot, but we have additional work to do.”

Policymakers have cautioned that a reduction in demand caused by their no-holds-barred fight against inflation may set back businesses and employment.

Companies may already be bracing for a downturn. Thirty-five percent of auditors said businesses are decreasing revenue and growth forecasts compared with just 16% in May, the CAQ said.

“U.S. businesses are responding to inflation and a possible recession by scaling back on certain growth strategies while increasing focus on cost savings, liquidity and improving productivity,” the CAQ said.

Although concerned about the intensity of inflation, the proportion of auditors who believe price pressures will persist for more than 12 months declined last month to 68% from 75% in May, the CAQ said.

As they adjust strategies, businesses in addition to trimming growth forecasts are reevaluating investment and decreasing spending, and focusing more on cash flow and liquidity, the CAQ said.

“With ongoing concerns about inflation and a potential recession, it’s no surprise that business leaders are re-examining their growth strategies,” Julie Bell Lindsay, CEO of the CAQ, said in a statement.

“But the ways they’re adjusting, including throttling back on mergers and acquisitions and scaling back on hiring, stood out to us and suggest that cash flow is a top priority, at least in the short term,” Lindsay said.