Trendsetter Barometer® business outlook: Q4 2018 top findings

Conditions for growth in 2019 are still solid, but rising financing costs and lingering trade uncertainties are having an impact.

Privately-held US firms are not anticipating a pullback in spending in the business or their workforces in 2019, despite fresh doubts over the strength of the US recovery as it heads into its ninth year, according to PwC’s Trendsetter Barometer latest findings. The quarterly survey of 300 CEOs and CFOs—now in its 22nd year—shows expectations that wages in 2019 will rise at the fastest pace in years, besting the 3.2% rise in US wages in 2018. Panelists are now budgeting for increases in hourly wages for their current workforce at an average of 4.37% over the next 12 months, above expectations in the third quarter for a future 4.17% average rise in wages.

These findings suggest talent needs will continue to exert strong influence on budget decision-making this year among US mid-market firms and beyond. Panelists’ views have served as a good leading indicator of the annual change in US employment costs, and privately-owned companies employ millions in the US. The jobs picture hasn’t changed for Trendsetter panelists, who continue to see a lack of qualified workers as the greatest barrier to their business growth, followed by policy/regulatory uncertainties. “We need a path for legal immigration, we need workers,” the president of a beverage company told PwC. “We need to expand and sell our products in other states. Craft brewing has become very competitive and the margins are tightening.”

US-China trade dispute

Where are the emerging trouble spots?

As panelists’ US economic sentiment descends from historic highs for the second consecutive quarter, it’s clear that while a majority believe conditions for future business growth are solid, concerns are rising. A net 63% are optimistic about the US economy’s prospects over the next 12 months, down from a net 77% this time last year.** The findings help isolate two areas of concern—the reality of rising financing costs in the US and secondly, a perception among some that the simmering trade dispute between the world’s two largest markets—the US and China—will hurt the global economy.

Emerging trouble spots

Interest rates on the radar

Worries spiked during the fourth quarter: 48% cited concern over higher interest rates, up from 21% in the third quarter and 7% in Q4 2017. It is a remarkable turn in sentiment that likely reflects stock price volatility during the quarter and other events, such as the rate-tightening stance of the Federal Reserve since 2015. However, it’s also possible that as US interest rates rise, more businesses are factoring in the prospect of higher future costs stemming from fixed term loans (which are common among mid-market businesses). 30% initiated new financing, meaning bank loans or credit terms, during the quarter. Among panelists, the mean interest rate paid for bank financing stood at 4.6% during the fourth quarter, up from 4.13% in Q4 2017.

90-day truce

What happens after the 90-day tariff truce?

As the US-China trade dispute enters its second year, more executives are getting a better feel for the impact on their businesses. In aggregate, the effect of tit-for-tat tariffs on a widening range of goods over the course of 2018 is most likely to be mixed: 19% of panelists now say the impact on their opportunities over the next 12-18 months will be positive while 23% say it will be negative. However, a majority of panelists either continue to see little change or are still uncertain. As the dispute lingers, concerns are rising that the wider world will suffer, with 36% of panelists now fearing a ‘negative impact’ on the global economy vs. 19% during the second quarter.

The US and China agreed in December to hold off on any new or increases to tariffs for 90 days in order to resolve their differences. Despite this, many panelists feel the uncertainty around the talks is too great, which makes it difficult to gauge the extent of the impact on them, if at all. “A lot of our contracts are multi-year. If costs increase due to the tariffs, they may not be passed immediately on to us but can possibly affect our costs down the road,” said the CFO of a medical center in a typical comment. For some, however, the risks are already clear: “We import. The tariffs are totally tied to the success of our business and they need to be removed,” a finance director for a packaging distributor volunteered.

About the survey

2019 will mark PwC’s Trendsetter Barometer's 22nd 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, as well as the trend in total employment costs, our analysis of the data shows. Fourth quarter 2018 results reflect the views of 300 CEOs/CFOs interviewed between October 1, 2018 and January 2, 2019, representing a cross-sector profile of US privately-held firms with average annual enterprise revenue of $383.3 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.

Historical trends at a glance

Optimism on the US economy - US privately-held companies
Revenue growth outlook - US privately-held companies
Major new capital investments - US privately-held companies
Plan for hiring and wage increases - US privately-held companies
Business growth threats - US privately-held companies

Contact us

Shawn Panson

US Private Company Services Leader, PwC US

Tel: +1 (646) 471 6101

Ken Esch

Private Company Services, Trendsetter Barometer Leader, PwC US

Tel: +1 (312) 298 3419

Margaret Young

Private Company Services, East Region Leader, PwC US

Tel: +1 (864) 577 8816

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