Articles

FP&A Indicator: Outlook Brightens on Spending Growth

By Bryan Lapidus, FPAC
Published: 3/15/2021

Results of the February 2021 Indicator

The total indicator score for Q1 2021 was 3.6. While we do not yet have enough data for a trend, this does indicate an outlook for growth. Diving into the data, the Outlook sub-score is significantly higher than the Actual MRQ sub-score, indicating an optimistic outlook for businesses.

The revenue expectations remain relatively uniform for the two periods, but operating profitability is expected to be lower...

… driven by expansionary spending in a few key areas, notably: 1) sales, advertising, and marketing, 2) business’s investment and capital expenditures, and 3) company employment.

We interpret this to mean that businesses were concerned with profits at the end of 2020, perhaps trying to get close to fiscal year targets or preserve cash as economic and political uncertainties lingered. Turning the page to 2021, enterprises now are looking to put more money to work, which our survey methodology shows as expansionary, even as profitability declines. These results are not surprising as COVID-19 cases have fallen steadily since their January peaks, and the most recent job report showed nearly 380,000 new jobs created (February 2021).

The Risk Outlook is the third sub-score to the overall indicator, and for this period was -0.8. The risk score represents an average of the six micro-economic risks. The negative numbers indicate a stronger threat. Even without trend data, we can see how the risks compare against each other: The two areas of technological risk were rated the most serious threat, while financial concerns were the least.

We interpret these data to mean that the increased move to remote work has put protecting the IT infrastructure front and center as it is the most important risk that enterprises face. It is an enabler of the other five areas, and is fast-moving and unpredictable and difficult to manage. Recent news of international hacking has made this threat real and public.

At a more detailed level, the FP&A Indicator is reviewed by various demographic crosstabs.