Trendsetter Barometer® business outlook: Q3 2018 top findings
Costs pressures intensified for US mid-sized companies in the third quarter, rising to the highest level in two years, but with little sign of direct harm to the bottom line, the 300 US executives surveyed for PwC’s Trendsetter Barometer of sentiment remain in expansion mode. Planned hiring is up: workforces are expected to grow by a net 4.1% over the next 12 months, according to panelists. This marks the highest outlook for full-time equivalent hiring since the onset of the financial crisis 10 years ago.
At the same time, worries over finding ‘qualified workers’ have surpassed pre-crisis levels with US unemployment rate now at a 49-year low. 72% of panelists believe labor shortages may act as a brake on their business growth over the next year. It is the top concern and near an all-time high in the 21 years of Trendsetter data. These findings suggest that mid-sized US businesses – in many ways the engine of the US economy – will be charting new territory as they seek to staff up in a tight labor market. “We have reached our ceiling. We need to find engineers as well as blue collar employees,” said the president of foods distributor.
Strategies will include higher pay: the mean expected increase in hourly wages over the next year rose to 4.2% in the third quarter, up from projections of future pay hike of 3.6% in the second quarter. Yet strategies are also likely include more use of labor-saving technologies as well as boosts in benefits packages and incentives – such as offering paid leave to valuable employees, as an example - to ensure they can meet anticipated spike in demand.
Optimism about the US economy remains near an historic high, even with a slight downturn in the third quarter, a net 76% of panelists are positive on conditions for business growth over the next year.* Panelists’ views have served as a good leading economic indicator on where US GDP growth is likely to be in a year’s time, our analysis of 20 years of the data show. Some are looking for an infrastructure development stimulus to keep the post-2008 recovery going. “Deregulation must continue. Domestic infrastructure programs are needed to rebuild the country,” said the president of a transportation logistics company.
A net 21% said their costs went up in the third quarter, up from 9% in the second quarter. Over the same period, a net 34% said their own prices went up vs. 27% in the second quarter. The pattern has held consistently since the start of the year – pricing power improves even as more panelists report higher costs. Business leaders believe these conditions will continue over the next year, even as wage expectations rise and as they navigate swings in demand for some domestic raw materials and other inputs as a result of a raft of new or threatened tariffs on imports. “Tariffs are a real concern, we need certainty in the markets,” said the CFO of a construction firm. Of note: Concerns over higher energy prices – an important input cost for US industrial firms – have shifted higher since the start of the year, now seen as a potential barrier to business growth for 46% of panelists.
Trendsetter panelists are far more optimistic in the US economy: Demand is stronger, the number seeing a quarterly hike in prices on their products or services is at a 10-year high. On the other hand, despite the drop in the corporate tax rate and a rollback agenda in Washington, regulatory uncertainties are higher than they were during the heart of the financial crisis. Challenges posed by foreign competitors have also become more acute.
2018 marks PwC’s Trendsetter Barometer's 21st year. Panelists’ views have served as a good leading economic indicator on where US GDP growth is likely to be in a year’s time and whether employment numbers will rise or fall, our analysis of the data show. Third quarter 2018 results reflect the views of 300 CEOs/CFOs interviewed between July 2 and September 28, 2018, representing a cross-sector profile of US privately-held firms with average annual enterprise revenue of $387 million.
*PwC calculates net economic sentiment as the balance of panelists who are “optimistic” minus those who are “pessimistic” about how they feel about the US economy over the next 12 months. We exclude “uncertain” responses.